The effect of the great recession on Indan and China
This report aims to examine the impact of the 2008 global economic meltdown on the emerging economies, India and China. India and China have the largest population in the world, billions of people depend on these two economies, hence when the economies of two such giants come crashing down is a reason to worry. China and India according to me were the two least affected nations, then too the damage was huge The economic decline of 2008, The Great Recession, was one of the worst global recessions since World War II. The main cause for the start of this crisis began in The United States of America where there was an inequality in the household incomes. this in-turn caused the economy of America to decline at a rapid rate. this decline lead to the fall in international trade that took place with America, America being a super-power and a major importer from world over caused a global economic instability where there was a decline in the annual world GDP. This crisis affected various countries, although they differed from country to country, the economic effects could include: • Fall in export revenues
• BOP deficit
• Lower FDI
• No improvement of salaries
The term “financial crisis” is broad term that covers a range of events such as crashes in the housing market, banking sectors and of course recession (Siddiqui 2008b). It was the "Financial weapon of mass Destruction"(Warren Buffett). Many economists and commentators, have highlighted the causes of credit crisis due to lack of proper regulation, legislation and transparency (Cecchetti, 2008b; Adrian and Shin2008; Goodhart, 2008).
The world was in the midst of a financial crisis which threatened the world wide economic recession. It brought a halt for more than a decade of increasing prosperity and employment for the western economies and it almost wiped out a wholesome of $1 trillion off of the value of the total world economy ((Boeri and Luigi) The credit crunch occurred when house prices fell and mortgage defaults increased.
India is developing into an open market economy, where autarkic policies remain. India has half of its work force in agriculture, but, services are the major source of the economic growth. One drawback of Indian economy is that, it is corrupted. Where as, China is very market-oriented and plays one of the major roles in the global market, and was also awarded the largest exporter in 2010. The crisis had a major impact on India's export growth rate in 2008-09. The reason behind is that, the export market had immensely reduced for products like handicrafts, spices, textile and leather. America has had the world fall to its knees and this had caused the domestic industrial production stall in China as international trade was depleting. This in turn led to great unemployment and closure of factories causing a fall in the GDP of China and giving a rise to the unemployment levels. This crisis has led to a considerable drop in the prices in the housing sector. This in turn affected the electricity industry, IT industry and the list goes on, it was a domino effect but China did not cave entirely
The FDI in India has declined by 55% - from US$ 4.4 Billion in March 2008 to $2 billion im March 2009. The export have reduced to the seventh consecutive month in April 2009 to fall of 33% Reduced investors interest in the Indian economy could affect the impact of capital inflow into the country. In addition, due to lack of liquidity, the inflation would be in control, but the interest rates would increase and therefore causing the rupee value to fall in currency reserves. Whereas, The World Bank pressed the Chinese government to share the economic development experiences with governments of other emerging economies. ‘Prior to the crisis, China inflation from 0% to about 8% in two years and declaring bankruptcies (Overholt, 2010). The author goes on to say that there is an...
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