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Published on:
May 18, 2023
By
Pranjal

Global financial crisis and its impact on the Indian economy

The world's major economies are beginning to slow down, and in the past, similar levels of inflation and market stress have predicted a global recession. 

Hearing about decreased GDP, rising costs, and international upheaval can be frightful. While the situation has become urgent in several of the economies around the world, it is not as bad in India. 

High Real Growth, Far From Recession

According to the Indian Economic Survey 2022–23, India is expected to experience real growth of 6–6,8% in FY24 despite the uncertainty in western countries. Although this is less than FY23's (estimated at 7%) and FY22's (9.1%), the impact of the two shocks—the conflict in the Russian-Ukraine and inflation-control measures—should not be ignored. India will have one of the fastest-growing big economies in the world, even at 6%. 

More Dependence on Internal Consumption Rather than Exports

Since just 5% of India's GDP comes from exports to other countries, the effects of a slowdown in the economy of western nations are not as severe. Due to the diverse nature of its exports—both in terms of geography and the goods/services it offers—India's economy is further protected, making it less susceptible to concentrated economic shocks. 

India's 1.4 billion-person population and demography are another driving force behind the country's progress. In striking contrast to most affluent nations, India has a comparatively young population, with 26% of people under the age of 14 and 67% between the ages of 15 and 64. The stability and expansion of India's demand are driven by this fundamental strength. This guarantees that the demand for goods and services from Indian consumers.

Resilient Indian Banking System

Indian banks are now better equipped to handle stress because to the bitter lessons learned from the past's huge non-performing assets and small capital base. In comparison to their US counterparts, Indian banks are much more resilient to economic downturns thanks to strict regulatory oversight, good asset quality, and adequate capital levels. 

India has the fewest foreign claims both as a counterparty and as a guarantor when compared to other large nations, according to the State Bank of India's economic research study, which reduces the country's exposure to global uncertainties.

Favourable Import Positioning

Crude oil, metal, and edible oil prices are falling as a result of the negative consequences of the global downturn. India's trade as an importer of these commodities will greatly benefit from this. The trade deficit has also been aided by the price decline, which has helped offset the decline in exports.

Given that it imports around 80% of its oil, India is particularly susceptible to changes in the price of that particular commodity. India made a deal with Russia in 2022 to purchase crude oil at a sharply reduced price in the midst of EU and US sanctions, which helped India control inflation more effectively than western nations. 

While the global downturn would undoubtedly have an impact on the Indian economy because  current-day integrated economies, it will be far less as compared to western countries. Even with the presence of global headwinds, one can feel better knowing that India is relatively well-positioned to tackle any adverse effects the slowdown may cause.

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Updated on:
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