Economy watch Blog

The financial shock as experienced by the US subprime market has sent ripples globally. In such a situation it is important to analyse the impact of the US slowdown on the economic growth of India.

The Structured Investment Vehicles, Leveraged Buyouts, Collateralised Debt Obligations and Asset Backed Commercial Papers, all suffered a financial crisis in US. Consequently the labour market in US has been adversely affected and there is also a fall in the investor's confidence. How far India is expected to get affected by such changes is a debatable issue.

One viewpoint is that the appreciation of Indian rupee with respect to US dollar would subsequently lead to a fall in the interest rate. This would in turn push up the rate of inflation. The credit market in India would also experience a set back. The banks would reduce their credit limits owing to a low capital ratio. But till date there has been no capital flight in response to the slump in the US economy. Investors are well aware of stable markets and India falls in the safe net. Hence they would not suffer from any liquidity problem.

Another viewpoint is that India will be insulated from shock waves sent by US. This is due its large domestic demand, ever rising employment opportunities and increasing credit market size. In the past fiscal year India registered a 9% GDP growth. There may be a deceleration in the pace of economic growth in India in response to the slowdown of US. Even then its growth rate will be at par with many developed countries of the world.

Posted By:	Comments:
Harisankar Tripathy	Indian Economy is least affected by slowdown in US subprime market. Though rupee appreciation is regarded as a threat to India's economic growth due to falling exports, still an economy with a better spending driven base will follow a path of furter growth.

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Much euphoric world economic growth in the recent past is a refection of rising economic expansion. Developing nations worldwide have been regarded as the driver of faster economic growth. Countries such as India and China with attractive growth rates each are major contributors to the growth process-taking place. New mantras of Globalization have lifted barriers, created opportunities, resulting a free movement of goods, services, capital and ideas among countries. Faster growth is happening worldwide largely led by services sector. Growth in the services sector sometimes fails to solve the ongoing problems such as poverty, hunger, and mal-nutrition. On the contrary growth in agriculture sector is regarded as the best solution for above-mentioned problems.

The World Bank Group’s World Development Report has highlighted that GDP growth led by agriculture sector benefits the poor four times better than any other sector. However, finally for making this world free from poverty, hunger and mal-nutrition growth in agriculture is essential.