India In the Global Crisis
by Shannon Geis
Indian politicians have been insisting over the past month that India's economy is strong enough to withstand the global economic crisis. However, the Indian economy, while it remained strong for quite a while after the global crisis began, has started to feel the burn.
It has been suggested that since so much of India's economy had been fuelled by domestic consumption, it would largely be able to escape this global meltdown. However, it seems even India's economy is not immune to outside problems. Domestic spending in India has significantly dropped, just one sign of a slowing economy.
Another sign of the slowing economy is the steeply sliding stock market, which has lost nearly half of its value recently. This marks a two-year low for the South Asian stock market. One of the main reasons for this slide is the dramatic withdrawal of billions of dollars of foreign funds invested in Indian stocks.
Foreign investors and capital have fueled India's growth. With all of these investors pulling out and canceling pending projects, the Indian economy is left with little capital to move around. To combat this problem, the Indian government has followed a similar path to that of more developed countries: India's financial authorities have begun to pump capital into the system to increase liquidity, much like the U.S. bailout plan.
Stock market and credit liquidity problems have especially affected the newly-formed Indian middle class. Young professionals who have growing wealthier over the past few years have started to invest their savings in the Indian stock market. With more money to spend, these professionals have also started purchasing houses, cars, and other luxuries that were previously out of their reach. In short, they have begun to develop the spending habits of professionals from more developed countries.
The largest sector to take a hit from the global crisis is the airline industry. Indian airlines like Jet Airways have recently started growing. The emerging middle class has started traveling, which has created large profits for airlines. However, the airline industry has also been the first to feel the cuts in spending, and has started to layoff employees to counteract the loss in profits.
India's property sector has taken a hit in the global crisis as well. Property prices in Mumbai have been on par with those in New York City until recently. Many foreign firms were looking to build in India, but with the current financial situation those plans have been put on hold or cancelled. The high demand for property made prices soar, but now property values are down 10 to 15 percent. Banks are no longer giving loans to potential homeowners and businesses.
Although India is starting to feel the pain of the rest of the world, it has been significantly less affected than other countries. In order to keep India from being harmed by the global financial crisis, there are several things that need to happen. Investments need to be made. Indians need to keep their money in the markets. If they don't, they are likely to face a similar situation to that of the U.S. One way to keep Indians investing is to lower the credit rates, which would allow investors more flexibility to invest.
Because developed countries are dealing with the most serious consequences of the crisis, imports from Europe and the United States will be cut in the next few months. India must put more emphasis on Asian markets and imports, which have remained relatively stable and independent.
The International Monetary Fund (IMF) predicts the effect of the global financial crisis on India's economy will be minimal. It expects India's economy to grow seven percent despite the financial turmoil. While this growth prediction is lower than last year's, it is still a positive indicator for the growing nation.
There is, of course, one especially bright spot in this for India. American debt collectors have been opening more and more call centers in India to deal with the influx of American debtors. This means more jobs for Indians-always a good thing for an economy.
