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Analysis of Current Financial Scenario and its Impact on India

Updated on August 12, 2011

Indian Financial Situation

India, in the eyes of the world seems to be afflicted by a financial virus of sorts. Is it endemic, epidemic or pandemic? In seeking the answers we are compelled to trace the genesis of problems and the course of progress.

India opened up its economy in the early 90’s after great deliberation. The tariff barriers were broken down and export, import policies were liberalized. Curbs on foreign direct investment was rationalized. The Indian rupee was unshackled and rate was allowed to be determined by the market. Consequent to the liberalization India experienced unprecedented growth. Information Technology industry only added to the momentum.

In aviation sector, the ‘open sky policy’ saw a number of private airlines with foreign equity pouring in and flying high. It provided connectivity across the country and competitive pricing. Along side telecom, insurance and financial sectors were also opened up. Many overseas players taking advantage of the favorable climate, set shop in the growth propelled economy. Many states vied with each other to provide special economic zones virtually spreading a red carpet to global and local investment.

Internal and External economies of scale

From being just an exporter of raw materials and a market for finished goods, India, has transformed itself to exporting finished products in electronics, textiles and machinery to the western world employing strict quality control methods.

Infrastructure development what economists call as, ‘Internal and External economies of scale’ were milked by the adventurous entrepreneurs. The last decade and more saw a spiraling growth as suggested in the ‘Keynesian Model’. More Investment – More Employment – More Income – More Profit – More Expenditure and savings leading back to more investment so on.

There were minor setbacks like the Gulf war, Dot com busts, and crash of the money market. The stock market crash after the Harshad Metha scam is not a distant memory. ‘The bulls exited, the bears ruled and the stags were left clueless’. The lull lasted only for a couple of years. The momentum of growth was a catalyst and the bulls were back to the fore. The money market galloped from 8k points to a dizzy 21k. Its was incredible and even the most conservative investor was drawn to the market ‘ To make hay while the sun shines’.

As the rule of nature goes, ‘What ever that goes up should come down’ has become a reality. Cycle of troughs and crests have become the order of the day. America under Bush was ambushed literally through needless aggression and Big brotherly attitude. It got stuck in Iraq and Afghanistan. The ‘green back’ nose dived and the economy saw a down turn. The weakening dollar and the global meltdown had its catastrophic effect the world over and in India particularly. The newspapers screamed that ‘If America catches cold; India sneezes!’. In US along side the money market the banks, the auto majors and aviation have touched its nadir!

Future of Indian industries

Every industry is crying for a bail out. The government has pumped in funds to reverse the depression mode. In sync Indian market too started to decline. The government in caught in a ‘Catch 22 situation’. It has to maintain growth and stem inflation as well. Precisely why, despite encouraging results from corporates, employment opportunity is dwindling. The Sathyam fiasco at the dawn of the new year seem to be ‘Final nail on the coffin’. Acting swiftly the government while looking to punish the guilty is equally active to bail out a sinking ship. The finance ministry has gone all out to stem the rot. It is pumping in funds directly and indirectly by lowering the cash reserve ratio and repo-rates it hopes to trigger infrastructure, growth and overall development.

India in particular is eagerly watching the confident president elect Barack Obama, to turn the tide. ‘Yes, we can’, was his opening mantra. The infectious enthusiasm is evident in his oath taking address where he is daring and raring to go. He is willing to take ‘Head on’ the ‘Ominous clouds’ and the ‘Raging storms’. The ripple effect will trickle down to India too.

The doomsday protagonists are however skeptical and pessimistic. They foretell and portend crisis, catastrophe and calamities. Will Indian financial scenario see an up swing? This is a question upper most in the minds of every thinking citizen. India is a vibrant economy, responsive to change and resilient to its impact. The developed world is curiously wondering a phenomenal growth in the two Asian giants – ‘Chinese Dragon’ and ‘Indian Tiger’. Definitely, India is bound to rebound from temporary setbacks and cruise high on its road to progress.

We are only going to live, to see it!


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    • LensMan999 profile image

      LensMan999 8 years ago from Trans-Neptunian region

      Now India is behind China and Japan in Asian countries ,After 2 or 3 years We will overcome Japan and China

    • H P Roychoudhury profile image

      H P Roychoudhury 8 years ago from Guwahati, India

      Yes, the hub has rightly analyzed the financial scenario of India. There is lot of educated youths in India who had chosen their profession in IT. There is incentive in electronics as well as in agriculture. Moreover Indians in general are sincere to the work and devotional to the interest of the country and not addicted to row deism. All these character helped to continue with the economic progress of the country. But the road is very very long….