Macroeconomic Overview of the Indian Economy

Having originated in the advanced economies, the Global Financial Crisis (GFC) of 2008–09 spread rapidly to the rest of the world. The impact on the emerging markets, especially those in Asia, though not as severe as that in the advanced countries, was still quite significant. India withstood the crisis initially but could not remain entirely unaffected for long (especially after the collapse of Lehman Brothers) given that it has become quite closely integrated with the rest of the world. It was affected by the GFC through the financial, real and the confidence channels (Patnaik and Shah, 2010; Sinha, 2012). Initially, the Indian financial markets (equity, foreign exchange and credit) were hit by the external shock, though the real sector did not remain immune for long, as reflected in the deceleration in growth from a high of around 9 per cent before the crisis to 5 per cent in 2013 (MoF, 2012; Subbarao, 2009; WDI, 2014). Despite being affected by the GFC, India was able to bounce back relatively quickly mainly because the country’s growth was driven by domestic demand and was less reliant on the export sector for its growth compared to many East Asian economies (Bosworth et al., 2006).