Indian Economy Getting its Right Path

Indian policy makers pride themselves on the fact that the Indian economy was able to pull out of the Global Financial Crisis (GFC) relatively unscathed, with real GDP growth rate falling to 6.7 per cent in 2008-09 as compared to the 9 per cent in 2007-08 and expected to rise above 7 per cent in 2009-10. At the onset of the GFC, many commentators had expected a collapse of growth, with some even predicting a return to the sluggish growth of the mid to late 1990s.

Thankfully,the Indian economy proved the predictors of doom wrong. A number of factors have been ascribed to explain this performance: high consumption in India, as compared with China, and lower exposure to the global economy, again as compared with China. High home consumption is desirable as it gives support to the domestic economy in the face of a collapse of international trade, as happened during the GFC. Additionally, lower exposure to international trade reduces the impact of external shocks. The existence of substantial controls on the banking sector is said to explain the fact that no Indian bank had to be ‘rescued’. In addition, credit also is sometimes given to ‘good policy design’ by the government.