IMF Says India Economy Will Not Escape the Global Financial Crisis

Large domestic market will keep fuelling growth of the Indian economy, though at a

lower pace, despite financial crisis leaving the US and Europe reeling under recession, experts have said.

While the Reserve Bank and stock regulator SEBI have announced measures to improve liquidity in the system, the equity market has suffered painful bruises in India in sync with the global bourses.

But economists feel, the domestic market, which is much bigger than the exports, would save the day for the economy.
“The Indian domestic market is so big that if there is some pause in the global market, it will not affect the Indian corporates,” Secretary General of the FICCI Amit Mitra said.

He said, unlike other countries, India has a vast market and “a significant proportion of their (Indian industry) output is targeted for the domestic market,” he said. Though some industry surveys have shown erosion in the business confidence, over 35 per cent increase in the corporate tax during the April-September period of FY’09 shows a different picture.

Even the exports have shown an impressive performance in the April-August period rising by 35.1 per cent. An import appetite remains strong for a growing economy. Imports went up by 37.7 per cent in this period.

Principal Economist CRISIL D K Joshi said: “The domestic market is wide enough to sustain the US financial crisis.” However, he added, “We are buffered but not fully protected”.

The global turmoil would impact the Indian financial sector. ICRIER Director Rajeev Kumar said problems in the US and Europe would hurt the Indian economy but the impact has not been direct. He agreed that a ” wide Indian market will help sustain the growth to some extent”.

India’s economic growth rate may slip further and decline to 6.9 per cent in 2009, as countries in emerging Asia are not totally immune to the financial crisis in the US and its subsequent fallout, the International Monetary Fund (IMF) said today.

India’s Gross Domestic Product (GDP) is likely to slowdown to 7.9 per cent in 2008 and slide further to 6.9 per cent in the next year, said the IMF’s World Economic Outlook (WEO) released here ahead of the annual meetings of the IMF and the World Bank. According to the IMF data, India recorded a GDP growth of 9.8 per cent in 2006 and 9.3 per cent in 2007.

“In India, growth in the second quarter came down to about 8 per cent, on the back of weakening investment”, the report said, adding private consumption and export, however, continued to do well.

For Asia as a whole, the report said, economic growth rate was likely to slip to 7.7 per cent in 2008 and 7.1 per cent the next year in 2009.

The report further said that financial markets have weakened in recent months, driven by increasing concerns about the global outlook and declining investor risk appetite, particularly in the context of the September market turbulence.

Having experienced the largest run-up in prices in recent years during 2005/07, the report said, the stock markets including in India, have declined. In some countries, it added, borrowing spreads have risen markedly hurting those banks which rely heavily on funds from wholesale markets.

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