how us crises effect indian economy

[kavi]

How US crisis impacts Indian economy
2008-10-06 18:05:00

By Ziad P S
How has the US financial crisis affected Indian economy? A crisis that
erupted in USA has now spread globally and we have been watching the
development from the sidelines.

In fact the US financial crisis had started as recent as in 2007 and
eventual collapse of the dollar only worsened the world crisis.
However, USA tried to portray a brave face before the world and
claimed its economy is still stable and ready to overcome any
challenges. Perhaps, the world might have fallen in that deceit fable
and continued transaction on the basis of US economic strategy.

Some have compared the situation in the US with the Great Depression
of 1929, but this situation is far from a depression – in fact it's
not even a recession.

Unfortunately, India too is a victim of US financial crisis. It is
important to note here that earlier the financial policies and
agreements that had been adopted during the Congress regime when Prime
Minister Dr Manmohan Singh was the Finance Minister of India, such as
World Trade Organisation (WTO) notmd and other free trade agreements
has had adverse consequences on Indian economy.

Although foriegn trade does help an economy, it also becomes
vulnerable to external shocks as has happened with the US financial
crisis which has now affected India's key sectors including
information technology, banking and commodities.
As foreign trade rises, more and more products are imported. Much of
our value-added spices exported are based on raw spices imported into
the country in large quantities. It is true that the government has
always provides sops to boost the agricultures and allied businesses,
but the major focus was sometimes on imports. Thus India became a
fully dependable country.

Is Manmohan Singh government dancing to the tune of US administration?
This suspicion arises taking into consideration the speed with which
the Prime Minister went ahead to finalise the Indo-US Nuclear deal.The
same Nuclear deal has not been taken for the discussion in the Indian
Parliament, had been analysed in more detail in US Congress and
Senate.

Montek Singh Ahulwalia, the Deputy Chairman of the Planning
Commission, who accompanied the Prime Minister to US for the nuclear
deal said that the recent economic meltdown that has devastated the
robust American banking sector, will have no direct impact on India
thanks to the overflowing foreign cash reserves, the regulatory nature
of our banking sector and the carefully calibrated, cautious and
gradual liberalization policy designed by architects of the economy.

Such assurances releive the anxiety of the moment as the country looks
relatively insulated from global shocks unlike most other
countries.Though it is difficult to quantify the exact implications at
this stage, a couple of points worth noting are -Indian IT companies
have around a 30 percent exposure to financial services, funding
constraints could result in some uncertainty for the real estate
sector; and while direct exposure for Indian financial institutions is
negligible there are a few firms which could be impacted at the
margin.

In the final analysis it goes without saying that that the US
economic policy failure would affect the world because it is
everybody's business.