The Global Financial Crisis and its Impact on India’s External Sector

The term financial crisis refers to the loss of confidence in a country's currency or other financial assets causing international investors to withdraw their funds from the country. The financial crisis and associated recession originated in the US in early 2008 and then spread to Europe has by now engulfed most of the economies in both developed and developing world. There is every possibility of direct as well as indirect implications of the crisis on all the economies of the world. The crisis has affected the entire global economies in one way or other. The present study makes an attempt to identify the immediate impact of the financial crisis on major world economies especially Indian economy in terms of selected economic indicators. The study examines the trends in export, import, foreign remittances, earnings from business services, overall Balance of Payment position, GDP growth rates etc in the context of Indian economy against the background of global financial crisis and subsequent global recession. India is considered to be highly vulnerable to a crisis like this because of its greater integration with the rest of the world. The study shows that there are some reasons to believe that the financial crisis affected Indian economy adversely by slowing foreign remittances, foreign investment, adverse BoP position etc. However, Indian economy shows the symptoms of rapid recovery from the sudden set back it had to undergo during 2008-09.