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Factors that have saved India

Internal and external policies of India have saved the country from total collapse. Despite market crash worldwide, Indian economy remains afloat

Tags: budget, foreign inflows, global crisis, narayanan ramaswamy, KPMG India

BY Taslima Khan  |  comments ( 0 )  | 
Factors that have saved India

Market based on strong infrastruture
A strong domestic market, with relatively low dependence on exports, combined with high savings, has made India one of the best performers in this global slowdown. In fact the economic meltdown had little impact on many quarters of Indian economy. 

India’s low reliance on exports, evident from a low export to GDP ratio of 24 per cent (Singapore 234 percent, Taiwan 74 percent, China 36 percent), coupled with abundant domestic demand are key factors that have made the country less vulnerable to the slowdown. Sizeable government expenditure and three enormous stimulus packages have been vital in maintaining India’s demand momentum. The recent budget also confirms the government’s objective to augment domestic demand with government spending set to increase by 36 percent y-o-y.

The saviours
Even though India has been affected to some extent primarily as a result of a sharp fall in foreign inflows, which tumbled from USD 61.6 billion in 2007-08 to USD 21 billion in 2008-09, timely monetary and fiscal measures such as provision of forex and rupee liquidity coupled with sharp cuts in policy rates, helped cushion the domestic economy from the crisis. In fact the trend in foreign inflows has already started to reverse as global markets have begun to stabilize. Flow of foreign investment have surged five times in the April-June quarter to USD 15 billion as against the preceding quarter.

The traditional Indian habit of savings, though the bane of the retail sector, has emerged as a saviour in this meltdown. High level of domestic saving enables a country to cope better with reduced capital inflows. India’s high rate of savings of 39 per cent of GDP (2007-08) has risen at a CAGR of 22 per cent between 2002 and 2008

India’s robust banking system, which enjoys a comfortable capital adequacy ratio of 13 per cent with low delinquency levels, was able to weather the liquidity crunch. The strength of the banking sector, coupled with aggressive monetary measures including rate cuts to the tune of 475 basis points between October and March, has helped banks to sustain their lending even in a downturn. As the government strives to improve the growth of the country and banks begin to lend more freely, demand for credit as well as consumer spending is likely to increase in the coming weeks.
India’s strong fundamentals and inherent advantages are strong defense mechanisms against any global crisis and will continue to fuel the growth of one of the world’s best markets. A measured increase in consumer spending will help fuel growth in India and help take a lead in reviving global economy. 

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