Indian Economic Slowdown

Readers Question: what are the causes of recession in india now a days?

India is not in a recession. What is happening is that the growth rate is slowing down from 7% a year to an estimated 5.5% to 6.5% (link)

India’s economy has been slowing down because:

  • Fall in exports to US, Europe and rest of the world. Although India is somewhat more detached from financial crisis than other countries, it is still affected by the global slowdown which leads to less demand for India’s exports. This is particularly acute in manufacturing exports
  • Fall in commodity prices such as oil and agricultural goods.
  • The fall in the Indian stock market from a peak of 21,000 to around 9,000 is a reflection of foreign investors desire to withdraw savings. However, its impact on the real economy is limited.

On the positive side of the economy

  • Indian banks insulated from the toxic debt problem. Stricter regulation meant Indian banks did not get involved in buying the toxic CDOs which have led to large losses for many Western banks
  • India still attracting significant Foreign Direct Investment January 2009 saw impressive figures which improved FDI from last year [link]
  • India has a large internal market. It only relies on   external trade for less than 20 per cent of its GDP. This is significantly less than Japan or China and will help to insulate the Indian economy from a global downturn. [link ]
  • The World Bank is still optimistic about the prospects for the Indian economy in the medium and long term. A recent report by the World Bank annual assessment of Global Economic Prospects suggested that India’s economy could triple in size in the next 15 years.

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