The sudden change in the international financial markets directed many to except that the reason of economic reform in an increasingly globalized India would suffer a decisive setback. “See, we were right in opposing all this easiness,” one revanchist said, emphasizing that it was India’s intrusive regulatory system that had saved it from a worse consequence. Communist politicians formerly connected with Prime Minister Manmohan Singh even defended that it was their adversary that saved India from deregulating itself into disaster.
There was premature exultation. In short term, because of the crisis reformers was generally pushed on the defensive. The Indian stock markets knockdown, foreign investors withdraw and trade drop off.
Country recovered very quickly because it is much less dependent on global trade and capital. China relies on external trade for about 75 percent of its GDP versus India which relies only 20 percent; India’s large and prosperous internal market accounts for the rest. Indians never stop producing goods and services for the Indians, and that kept the economy buzzing. Due to domestic investors, most of the money kept at home. Deposit from overseas Indians remained robust, reaching $46.4 billion in 2008–09. And due to this foreign investors returned. At the time of the crisis which is in September 2008, foreign investors had withdrawn $12 billion from our stock markets, but they are now flooding back: foreign direct investment reached $27.3 billion in 2008–09 and makes it at the rate of $1 billion per week in May 2009.
Without any doubt, India’s generally traditional financial system helped. Our banks and financial institutions were not charmed to buy the toxic—and exotic —financial instruments that ruined several Western institutions. But exactly be-cause our system held up so well, there has been no rush to deregulate.
India’s accomplishment is all the more striking when remembering the terrorist attacks on Mumbai in late November 2008. Those terrorists struck at India’s financial nerve center and commercial capital, a city representative of the country’s enthusiastic thrust into the 21st century. They wanted to destroy the image and reputation of India as an emerging economic giant and an increasing magnet for investors and tourists, to make India seem as insecure and vulnerable country, a soft state afflict by enemies who could wound it with impunity. In response India again proved to be resilient and restrained. And the country was rewarded as its GDP growth rate hit 6.7 percent in 2008–09 despite of all the setbacks.
Policies of government have also helped. India turns out two rounds of fiscal stimulus. Its financial authorities have pushed for expanded credit, lower interest rates, and reduced excise duties, all of which have contributed to boosted growth. And there are signs now that the crisis is already bottoming out: industrial production has either expanding or stabilized is, India’s trade is growing up, and financial markets are developing.
Therefore in India the cause of economic liberalization remains safe. To be sure, it is proceeding and led by a confident Prime Minister Singh, who knows that he has steered the ship of state through some particularly treacherous waters. Recently India has concluded free-trade agreements with ASEAN and South Korea, and similar arrangements are being work out with other East Asian countries. With the help of different ways India is trying to integrate with its neighbors.
As for the reactionaries who wished to return India to the era of over-regulation, they’ve been quite. Not because it was isolated but Due to strong capitalist fundamentals India was less affected by the crisis than the rest of the world. India has drag out more people out of poverty in the last 15 years than in the previous 45 years. The country has become prospered, and instead of high population growth, per capita income has in-creased faster than ever before. The financial crisis is being used to safeguard these gains and to build on them. India will never return to the economics of nationalism, which equated political self-reliance with economic self-sufficiency and so downgrade us to persistent poverty and mediocrity. India is growing with more confidence than ever instead of retreating from the world.