Libmonster ID: IN-1303
Author(s) of the publication: A. V. AKIMOV

Since the autumn of 2008, the concept of "economic crisis" has been used in the scientific literature and mass media so often and widely that it has become necessary to explain and comment. This is due to the real complexity of the process it describes.

If we understand the crisis as a reduction in economic activity, then this phenomenon was limited and spread mainly to economically developed countries: the United States, Europe, Japan, and the CIS countries.

For the majority of developing countries and countries with economies in transition, they experienced only a slowdown in economic growth (see table 1). 1), so this situation can be called a crisis rather conditionally.

In the group of developed countries, the most advanced countries with a strong and innovative manufacturing industry were the most affected. The commodity exporter-Russia-showed a decline not much more significant than Japan or Germany. Countries with different development models-China and India-had significant growth, but the BRIC group (Brazil, Russia, India, China) Brazil showed a slight decline in the economy.

The wide variety of impacts of the global crisis on different countries creates a very diverse picture, but in most countries, in the context of globalization, the global financial crisis caused some kind of upheaval of the existing economic model, and some sectors of the economy and segments of the population most involved in the processes of globalization found themselves in a difficult economic situation.


The first wave of the crisis hit India in the fall of 2008.

In October 2008, during the acute phase of the global monetary and financial crisis, the value of the euro fell sharply.

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Table 1

GDP growth rates in some countries of the world in 2009


GDP growth rate, % by 2008

The world at large


Developed economies in general












Great Britain


Developing countries and countries with economies in transition










Source: Official website of the IMF. IMF World Economic Outlook (WEO) Rebalancing Growth. April, 2010 -

According to the latest data, in 2009 Russia's GDP was $ 39.016 billion. Brazil - $1.48 billion 2, and India's GDP growth in the 2009-2010 fiscal year (April 2009 - March 2010) is projected at 7.2%3. Data in absolute GDP figures for the world, EU, USA, China, India, and Japan, see the introduction above (editor's note).

On October 17, the Indian rupee fell to its mid-2002 level against the dollar, ending a long period of growth. The rupee also fell against the euro and yen. The Indian currency has fallen more than many Asian currencies, which were also devalued during this period.

The devaluation of the rupee was caused by the withdrawal of foreign investors from the Indian stock market, mainly speculators*, a reduction in foreign investment inflows due to the crisis, a significant increase in oil prices, which caused increased demand for dollars from importers, and the strengthening of the US currency. From May to August 2008, India's foreign exchange reserves decreased by $25.9 billion, and from September 26 to October 24, 2008, by another $33.4 billion, 4 and as a result, India lost almost 20% of its foreign exchange reserves that were available in May 2008, when they reached the peak values for a long period of growth.

The flight of foreign investors from the Indian stock market was also significant. In just one trading day on October 10, 2008, $500 million worth of assets were sold, panic and fear reigned on the stock exchange, and the Sensex * * exchange index fell by 800 points, or 7%, and in general for the first 3 quarters of 2008, it lost 48% from the level of the end of 2007.5

Naturally, all this resulted in large losses for investors both in India and abroad, but this kind of decline was observed in many countries and was global in nature due to the international nature of the modern stock market. If we talk about the interests of the majority of ordinary citizens of India, they are still very far from the turbulence of the stock market. Poverty in the context of the global financial crisis served as a kind of insurance against losses.

A more serious problem was the impact of the rupee's roughly 20% devaluation at the end of 2008. Its negative consequences include a reduction in foreign capital inflows, an increase in the size of external debt, measured in rupees, and an increase in the price of imported oil and mineral fertilizers, which required large expenditures in weakened rupees to subsidize. The positive aspects of the devaluation were a reduction in the cost of industrial exports and a rise in the price of imports, which improved the position of industrial exporters, who turned out to be more competitive in the world market and more protected from competition in the domestic market.

Thus, the picture turned out to be ambiguous: some won, some lost, but many companies reported large losses of the currency due to the devaluation. This reduced their profits in 2008. The positive impact of the devaluation on import-substituting industrial production and exports was reduced by the fact that India has to import many industrial goods that are used for production as raw materials and semi-finished products.

The crisis could not but affect the financial sector of the Indian economy. Many large firms in India actively launched IPOs (initial public offerings of shares on the stock market) in the pre-crisis period in order to obtain additional funds. This practice has come to naught, and those shares that were placed on the market have fallen significantly in price.

In addition, there was a flight of foreign investors who sold Indian securities during the global panic and

* Stock speculator - a bidder who tries to predict short-term price fluctuations and make a profit by buying or selling securities. Those participants who invest money in these securities for a long time are usually called investors (editor's note).

** Sensex - index of the 30 largest companies on the Bombay Stock Exchange (editor's note).

page 4

There is an emerging global trend to return investment to national financial institutions as a less risky form of saving.

The largest Indian banks and financial institutions, such as the Industrial Credit and Investment Corporation of India, Housing Development Financial Corporation, State Bank of India, which have established global ties, including with the largest American financial institutions, suffered from the fall of American giants. At the same time, they lost about $120 million, 6 which is relatively small for the American market, but significant for the Indian one.

The Sensex stock exchange index fell in the acute phase of the crisis at the end of 2008 by more than half compared to the pre-crisis period, and the decline in financial markets led to a strong reduction in the personal fortunes of many rich Indians who invested in securities, owned real estate, and assets outside the country. Rich families - Indian "oligarchs" - lost almost $130 billion, losses reached 30 - 50%, and the maximum-up to 70% of the state of these families at the peak of the crisis during the maximum fall in stock indices and real estate prices.7


As in many other countries around the world, India's financial sector experienced a major shake-up in the first months of the crisis.

The global shock in this sector has also affected other industries. Many Indian firms are engaged in outsourcing in the financial sector, that is, they remotely serve banks, insurance companies, and investment funds, primarily in the United States. This is convenient and profitable for everyone, as Indian companies can prepare documents and communicate with customers in English, while American companies reduce labor costs.

Indians occupy prestigious jobs and have good incomes by Indian standards, and the developed communication and telecommunications system in India ensures the stability of this scheme.

In addition, the financial sector is a major customer of software in India. During the crisis, this sector began to sharply reduce costs, first of all refusing the services of foreigners. The United States accounts for 60% of Indian programmers ' income, and orders for new software products fell sharply during the crisis, although those specialists who were engaged in maintaining already written software packages suffered less. However, since most of the programming costs are spent on hiring labor, the cost reduction has resulted in layoffs, and many young qualified Indians who are engaged in prestigious jobs in this industry are out of work.

The real estate and construction sector in India, at least in that part of it that is focused on the modern middle class, experienced a decline in a scenario similar to the Russian one.

Before the crisis in India, there were many ambitious projects in the field of construction and even urban planning, since it was a question of building entire satellite cities in large megacities. This sector is highly dependent on lending and on effective demand for housing and office space. As in Russia, a sharp reduction in lending by banks in crisis has led to the curtailment of construction. In addition, the price of already built real estate fell, due to the decline in the income of the middle class, demand for it fell, dragging down construction materials and metal structures.

In some cases, it is not entirely clear what has affected the state of the industry recently: the global crisis or long-term development trends.

India's textile industry has been experiencing a downturn in business activity since the beginning of 2008. After an increase of more than 11% in 2006-07 fin. 8 in the first half of 2008-09, output grew by only 1%. The industry is dominated by small businesses, and

page 5

it is becoming increasingly difficult for them to sell their products on the global market. For comparison, Indian enterprises of the so - called organized sector have an average of 100, and small firms-1 thousand. times smaller production capacity than Chinese textile factories 9.

Among the industries affected by the crisis was the semiconductor industry. Since mid-2007, the state program Semiconductor India has been implemented in India. Within its framework, it was planned to build large enterprises for the production of semiconductor devices and integrated circuits. The crisis forced to abandon most of the projects that were supposed to be implemented in 2009/10.

As you know, the most affected sector of the global industry in the crisis was the automotive industry. The pre-crisis Indian auto industry also experienced a shock, although during the downturn in the automotive industry of all major manufacturers in Europe, America and Japan, the Indian auto industry is experiencing some recovery. In the 2008/09 financial year, the level of production increased by 3%, while in 2007/08 production decreased by 2.3%, although the output of large commercial vehicles decreased by 35%10. Exports of this class of vehicles also declined.

Like many other countries that supported their auto industry in the crisis, the state provided assistance to this industry. State authorities were given the opportunity to take advantage of the central government's anti-crisis package and buy buses under the Jawaharlal Nehru National Urban Renewal Mission program, which allowed them to load production facilities and upgrade urban transport. With a view to the future, such a measure as the creation of an Automobile Design Center at the National Institute of Design at the initiative of the Ministry of Heavy Industry has also been adopted. This step is necessary to increase the competitiveness of Indian models not only in the foreign, but also in the domestic market. In addition, it is planned to create a Fund for the development of automotive components production, which should support domestic manufacturers, especially small ones, in the face of increased competition in this area, in particular, from the countries of the Association of Southeast Asian Nations.

Entrepreneurs in the jewelry, textile, and pharmaceutical industries-industries that rely heavily on exports - also found themselves in a difficult situation.

The Government of India's financial stimulus measures adopted in late 2008 were aimed at increasing the money supply, which was intended to stimulate demand and support producers and exporters. To this end, the discount rate was lowered, which expanded the ability of commercial banks to provide loans.

Another group of measures included limiting cheap imports. Previously lifted customs duties on cement, ferroalloys and some other commodity groups were restored. A number of measures were aimed at stimulating exporters. They have doubled the return of customs payments for the purchase of those goods that were used for the production of goods for export in India 11.

The Indian government has made significant allocations to deal with the crisis, which could lead to a doubling of the budget deficit in 2010.-

Table 2

Food price growth in India in 2009


Rising prices, %

Food in general

More than 20















Source: compiled by the author on: India. Rising food prices. BIKI, 16.01.2010,0.5, 16.

page 6

Table 3

India's foreign trade in 2008/09 and 2009/10 fin.*




Export, including re-export



2008-2009 fin. g., $million

13 368

147 569

2009-2010 fin. g. $million

14 606

117 587

Growth 2009 - 2010 fin. g. / 2008 - 2009 fin. g., %






2008-2009 fin. g., $million

19 456

253 809

2009-2010 fin. g. $million

24 753

193 829

Growth 2009-2010 financial year / 2008-2009, %



Trade Balance



2008-2009 fin. g., $million

-6 088

-106 240

2009-2010 fin. g. $million

-10 147

-76 242

Источник: Department of Commerce, Government of India -

* Data for 2008/09 fin. g. - the latest updated estimate, data for 2009/10 preliminary.

firms in the non-financial sector, which faced the most severe credit restrictions, and individuals who bought on credit and had debt. But it has had relatively little impact on the hundreds of millions of Indians who live in the cash economy.

A more serious problem for the majority of Indians in 2009 was the delayed monsoon, which led to crop failures and increased food prices (see Table 2). Perhaps most of the population of India is more likely to remember 2009. like a year of more drought (40-year low rainfall) and soaring food prices than a financial crisis.

Rice production declined by 19% in 2009, and there is a shortage of legumes, which make up a significant part of the protein diet of the poor. India went from being a sugar exporter to an importer due to crop failures. Even after lifting many restrictions on agricultural imports, India is facing the fact that 800 million Indians living on less than 20 rupees a day (about $0.5)12 cannot buy food.

The decline in remittances from Indians working abroad has had a negative impact on a fairly broad segment of Indian society. India is a leader in this area, receiving about $20 billion in transfers. In particular, the income of many thousands of Indian families is negatively affected by the curtailment of construction work in the Middle East, where a large number of people from India work.


Updated data on macroeconomic indicators for the 2008/09 financial year provided by the Ministry of Finance of India allow us to assess the overall impact of the crisis on the Indian economy and the diverse picture emerging in various sectors.

Gross domestic product (GDP) grew by 6.7% compared to 9% in the 2007/08 financial year, so overall the economy only slowed down. The industry suffered much more - the growth rate fell from 8.1% to 3.9%. First of all, this applies to the manufacturing industry, construction and electricity, gas and water supply. Growth in agriculture, forestry and fisheries declined from 4.9% to 1.6%.

The service sector suffered the least. Its growth slowed from 10.9% to 9.7%. The retail, hotel, transport and communications sector grew by 9% in 2008/09 compared to 12.4% in 2007/08, while the growth in finance, insurance, real estate and business services decreased to 7.8% from 11.7%. Growth accelerated in the public and personal services sector to 13.1% from 6.8% a year earlier.

This is the result of the government's increased budget spending as part of a policy to mitigate the impact of the global crisis on the Indian economy.

If we look at the macroeconomic dynamics in terms of GDP consumption, the crisis significantly slowed down private consumption - from 8.5% to 2.9% - and investment-from 12.9% to 8.2%. The opposite trend was demonstrated by public consumption, which grew by 20.2% in 2008/09 fiscal year, compared with 7.4% in 2008/09. 2007/08 13

The food grain harvest in 2008 was almost at the level of 2007, so the level of stocks was insufficient to offset the poor harvest in 2009.

The trend of declining Indian exports that emerged in the 4th quarter of 2008 was stable (see Table 3). The decline in exports and the accompanying devaluation of the rupee led to a decrease in imports, although the decline in imports is somewhat positive, as it is associated with cheaper oil on the world market.

Data on India's foreign trade make it possible to assess the extent to which the impact of external factors was significant for the country's economy.

From April to December 2009, when the global economy, especially in Asia, was already beginning to show some signs of a hundred-

page 7

India's exports fell by 20.3% compared to 2008 during the same period. For an export-oriented economy, this would have been a major blow, but the incompleteness of economic reforms aimed at making the Indian economy more open and engaged in global economic relations played a positive role: the country as a whole was not very affected by such a decline in exports.

But imports declined even more. This phenomenon is controversial for the Indian economy. The fact is that India is an oil importer, so cheaper oil is a boon for this country, and smaller amounts in oil bills are good news. The bad news is that India cannot help but import many types of investment goods (equipment, machinery, etc.) that are necessary for the country's modernization. Reduced exports limit the ability to import them. You have to do it on credit. This fact is noted by the trade balance indicators. Even the reduction of the foreign trade deficit by about a quarter in April-December 2009 compared to the same period in 2008 still does not change the need to look for sources to cover high imports.

Recently, the situation has started to change: in December 2009, exports increased by 9.3%, which is very good. But the picture is spoiled by a very rapid increase in imports - 27.2%. As a result, the trade deficit increased by more than one and a half times compared to December 2008.

The rising price of oil is "to blame" for this. In December 2009, oil imports increased by 42.8% compared to December 2008, and this commodity group accounts for about a quarter of Indian imports. However, in the first 3 quarters of 2009/10 FY, oil imports became 30% cheaper than in the corresponding period of 2008/09. So the rise in oil prices, which brings joy to the Russians, is a source of frustration for the Indians. At the same time, imports of goods not related to the oil group increased by 22.4% in December 2009, which is higher than in the whole of the 3rd quarter of 2009, i.e. we can talk about an acceleration in the growth of imports of investment goods, although it is possible that food imports increased due to a bad economic situation. harvest.


As for the development prospects, representatives of the Indian government are optimistic. Speaking in Davos on February 1, 2010, Montek Singh, Deputy Chairman of the Indian Planning Commission, argued that India could overtake China in terms of economic growth in the coming years and become the fastest growing country in the world14.

As Prabad Shukla, India's Ambassador to Russia, noted in an interview, before the crisis, the driving forces of the Indian economy were such industries as pharmaceuticals, jewelry, spice production, automotive, light industry and iron ore mining, which provided growth in production and exports. Not only in the long term, but also as locomotives in the current period of global economic recovery, high-tech industries are pinned on: pharmaceuticals, whose exports increased by 13% in the 2008/09 financial year, and software exports. According to the Association of Software Development Firms, the industry's annual revenue increased from 1.2% of GDP in 1997/98 to 5.8% in 2008/09. The government expects software and IT services exports to reach $80 billion by 2011. In addition, according to the ambassador, there is great growth potential in metallurgy, the biotechnological industry, the bioengineering and food industries, as well as in mechanical engineering.15

According to experts of the investment bank Goldman Sachs, for India as a whole, 2010 will be a year of growth in consumption. If the growth of private consumption in developed countries is equal to

page 8

only 0.2%, then in India-6%, in China-10.5%, in Brazil-4%16. Experts of this firm believe that such growth may be the beginning of a long-term trend, since India, like China, is going through the stage of development with which, based on long-term observations, analysts associate the maximum level of accumulation in the economy. The relationship between the level of GDP per capita and the level of consumption is U-shaped. That is, it is high both in underdeveloped poor countries, where it is difficult to accumulate anything, since everything goes to consumption, and in highly developed rich countries, where the economy works to cover a variety of effective demand. Goldman Sachs experts believe that India is entering a period of development that is characterized by a focus on the growing domestic demand of a fairly well-off population.

At the same time, there is a high demand for investment goods in India. The country needs to create a modern infrastructure. Currently, India's demand for steel products is higher than in Japan. According to Goldman Sachs experts, India needs $1.7 trillion in infrastructure investment alone over the next 10 years.17 This money is needed for the development of energy, roads, telecommunications, ports, airfields, railways, irrigation systems, water supply and sewerage. Without these investments, the country's economic growth and urbanization will slow down. The main items of expenditure, according to calculations, are highways ($427 billion), energy supply ($287 billion), railways ($281 billion) and irrigation ($272 billion).

As noted above, the Government of India forecasts economic growth of 7.2% in FY2009 / 10, compared to 6.7% in 2008, despite the poor harvest in the summer of 2009, which led to a significant drop in the growth rate of the agricultural sector. In the 2009/10 financial year, the growth of this sector may be only 0.2% compared to 1.6% in 2008-2009. Economic growth will be supported by industry, which will grow by 8.9%, thanks in no small part to government support measures. The pace of construction development will increase to 6.5% compared to 5.9% in the previous year. The service sector will grow by about 10%.

The export of services under the outsourcing scheme can reach $50 billion, and the growth rate of this sector will exceed 5%. The growth of the domestic market of information sector services will be 12%, employment in it will increase by 90 thousand jobs. Specialists in this sector believe that the global crisis has benefited the Indian information sector, especially those firms that worked on outsourcing, as they managed to increase their efficiency, reduce costs, and consolidate the industry, which was impossible during the period of very high growth rates.18

In general, India easily survived 2009, when the crisis was the dominant economic situation in the world. 2010 promises to bring significant growth.

At the same time, India managed to rebuild its economy to a lesser extent than the PRC, which partially reoriented its development to the domestic market. Even before the crisis, the Indian economy was largely oriented towards it.

It faces a different challenge: the economic reforms implemented in the country since the early 1990s are aimed at greater openness of India and increasing its level of involvement in the global economy. But the achievement of this task in 2010 is highly dependent on a very complex and uncertain global market situation.

1 Official website of the Federal State Statistics Service of the Russian Federation. Information on the socio-economic situation in Russia-2010 January. Key economic and social indicators -

2 Official website of the Brazilian Government. Brazil's GDP down 0,2% in 2009, demonstrating resilience amidst global economic crisis. 12.03.2010 - ng-resilience-amidst-global-economic-crisis

3 Official website of the Ministry of Finance of India. Union Budget and Economic Survey. Economic Survey 2009 - 2010. State of the Economy and Prospects, p. 1 -

Singh Sumanjeet. 4 Depreciation of the Indian Currency. Implications for the Indian Economy // World Affairs, 2009, vol. 13, N 2, p. 151 - 152.

5 Ibidem, p. 152 - 153.

Kripalani A. V. 6 The Effects of the Global Financial Crisis on the Indian Economy // World Affairs, 2009, vol. 13, N 2, p. 111.

7 Ibidem, p. 108.

Fiscal Year 8 in India begins on April 1 and ends on March 31. Statistical information is also timed to coincide with the same time frame.

9 In the textile industry of India / / BIKI, 12.03.2009, p. 15.

10 On measures to stimulate the automotive industry in India / / BIKI, 24.09.2009, p. 10.

Handoo Ashok. 11 Impact of Global Meltdown on Indian Economy in 2009 / / SME Times, 08.01.2009 - as of 17.02.2010.

12 Assessment of the National Commission on Enterprises in the Informal Sector. Cit. by: India. Growth of food prices / / BIKI, 16.01.2010, p. 5, 16; Official website of the IMF. IMF World Economic Outlook Database, October 2009. 5. Report for Selected Countries and Subjects - &scsm-1&ssd-1&sort=country&...

13 Official website of the Ministry of Finance of India...

14 We'll beat China as fastest growing economy: Montek -

15 Weighty India. Interview of the Indian Ambassador to the Russian Federation to Saint Petersburg Vedomosti 4.09.2009 // Indian Bulletin -

16 The BRICs Nifty 50: The EM & DM Winners // Goldman Sachs Global Economics, Commodities and Strategy Research, November 4, 2009, p. 12.

17 Ibidem, p. 18.

18 Economy to grow by 7,2% in 2009/10: Govt. 08.02.2010 -


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