Sources of Data and Methodology
The economic crisis that took place in the year 2008 had a huge impact upon the process of globalization. The root cause of this crisis is believed due to the bankruptcy of the Lehman Brothers and American Investment Bank that initiated in September 2008. Due to the complex levels of interconnection within the global economy, the entire financial system was at the risk of collapse at the global scale (Lins et al. 2017).
The current study will aim to focus on the impact of the global economic crisis that has been caused due to the global financial crisis on the developing nations. In the due course, it will be possible to highlight upon the lessons that has been learned from the developing nations. The special focus will be given on Indian economy and the effect of the same due to the global financial crisis. According to Mittal (2016), the Indian economy has been able to withstand the effects of the global financial crisis and emerge as one of the fastest developing economic nations of the world. This is mainly due to the fact that the Reserve Bank of India (RBI) and the Finance Department of the government has been able to take steps by sufficiently capitalizing the banks. This helped to ensure that the banks do not face the consequence of various of the European Banks that resulted in the slow growth of business and economy of the respective nations.
The current study will analyze the findings from various relevant secondary sources that will help to highlight upon the lessons that are gained from the developing nations. Information will be used from the economic and financial policies of India that will help to shed light upon the ways that can be implemented in future to deal with the issues of the global financial crisis.
For the current study the main sources of data that will be used includes that of the secondary sources. This will include major databases like Elsevier, Springer, Sage and many more. Other sources of secondary data will include the Indian government websites and that will use the statistical information based upon the economic progress of the nation. The economic database consisting information related to reforms in the financial reforms will also be used.
Qualitative methods are primarily used within the exploratory research, where it is important to understand the underlying reasons for the research problems. It will therefore possible to develop upon the research hypothesis. The thoughts and information that will used in the qualitative forms of data collection can help to uncover the deepest aspects of the research problems. This types of data collection are mainly used in the cases of un-structured or semi-structured forms of data collection. The sample sizes in case of qualitative methods are generally regarded as small, where data are being collected only from little sample sizes (Taylor et al. 2015).
Findings
On the other hand, the quantitative methods of the data collection are mainly used to generate the numerical data. This data is then transformed statically to make relevant conclusion about the behavior of the chosen sample. Measurable data that are collected from the relevant sources of the research are used in the given cases (Hussein 2015). The quantitative methods are mainly used in case of the primary sources of data collection that are mainly done with the help of interview and sample size.
For the given research work, the data are mainly collected through Qualitative methods that will allow to review all forms of the articles and journals that are related to the global and financial crisis. The government databases will also be used in this regards as a part of the data that can be used to analyze the impact of the global financial crisis on the Indian economic system. The data sources will also help to collect relevant information from all types of secondary sources.
From the findings of Prasad et al. (2005), it can be said that the wave of financial globalization from the mid-1980s, has resulted in the high rate of capital flow. This was evident due to the high growth rate across the industrial sector. On the other hand, some of the countries have witnessed collapse within the growth rates of the economy.
One of the major effects that of financial globalization is seen from the emerging economics of the developing nations. As the growth rate of all developing nations are measured with the help of the production rate or the Gross Domestic Products (GDP) it is only with the help of the financial globalization that it is possible to improve the rates of economic growth.
The findings from the research paper of Fidrmuc and Korhonen (2010), suggest that the financial crisis of the recent times has significant effects on the emerging economic nations like China and India. The effects in the given regards can be regards can be measured using the parameters of dynamic correlations. The performance of the business cycle within a nation has significant effects on the dynamic correlations that can help in measuring the performance national economy.
The effects of globalization are more prominent in the economic performance of the emerging nations like India and China. This has occurred mainly due to the investment made by the developed nations within the manufacturing sectors. Due to the rapid economic growth of China and India, it is possible for the nations to make significant contribution in the forms of investment in global trade. The rapid growth rate in china from 1980 has bring about rapid rate of development within the distribution of economic activities within the global scale. It is relevant in the given regards to highlight the fact that the global share of the Chinse GDP within the world economy has raised to 1.7% to 5.8% during the period of 1980 to 2007 (Fidrmuc and Korhonen 2010). According to the records of the recent developments, India has also been able to improve upon their global contribution. As of calculated in 2007, the share of Indian economy in the global scale is of 2.2%. According to Pradhan (2017), this swift growth rate in the Indian and Chinese economy is mainly due to the high levels of investment within the trade in the Asian region. With the increase in the trade share of India and China, the global growth rate has also increased.
In spite of the rapid growth rate of the economy within the Asian regions, all the countries are highly dependent upon each other in the matters of industrial growth. These facts are more evident due to the fact that effects of the global financial crisis have not spared the economic growth of the emerging Asian nations. This is also evident from the findings of the International Monetary Funds, where it is highlighted that the trade business of the Asian countries had negative impact due to their integration with USA (IMF, 2018). The business cycle of each nation are also one of the important determinants to decide upon the impact of the global financial crisis in each cases.
According to Leigh and Blakely (2016), the economic development of a nation is dependent upon both domestic factors that includes demand rate within the consumer market along with budget policies of the government and international factors that includes international trade policies and foreign exchange rates. In the case of the open economics, the international economic policies seem to have significant effects as the government has to deal with the changes in international market. For example, in case of India, the nation has to import more than 80% need of the petroleum products from the international trade market. Hence, changes in the international market in the forms of alternation in the petroleum prices has significant effects on the domestic markets of India, where the price of various domestic products can vary with the same. Hence, these nations have to deal with the domestic issues that are needed in the purpose of minimizing the negative effects of financial crisis. The banking policies of India has helped in the matters of dealing with the issues of fluctuation of the pricing at the international levels.
The findings of Carbó?Valverde et al. (2016), have shown that due to the increased in the frequency of the international trade there is now higher levels of integration within the economy of different nations. This integration can result in the business cycle synchronization of different nations. The intensity of the trade links is also dependent upon the business cycle. It is relevant to mention that as countries become more dependent on each other for trade and other types of business activities, more are they likely to face the effects of the global financial crisis. According to Maggiori (2017), the countries with high levels of trade integrations can have greater degree of output co-movement. It is important to analyze the cycle of trades and business within each nation that can help to ensure that most of the negative effects of financial crisis can be neutralized. It is important to have intra-industry trade that helps in better synchronization of the asymmetric business cycles of each nation.
Inadequate amount of capital is believed to be one of the major causes of financial crisis of 2008 that was initiated at the American financial institutions. The lack of capital has resulted in the institutions taking high level of risks, thereby affecting the flow of international trade. There also have been higher levels of inadequacy in the monitoring levels of the banking systems and the capital flow (ODI, 2018). In the given context, it is important to mention that for the developing nations, it is essential to collect supportive evidence. This is needed in the matters of conducting essential research for getting the updated information about the global economic and financial status. Yao and Whalley, (2017), have recommended that most of the developing nations like India need to implement the crisis task force that can help them in the matters of quick policy response. The financial policy of nations need to set up the rules for reduction of pro-cyclicality in the international capital flow. It is also essential to have high levels of transparency that will permit greater voice for all segments within each sectors. On the other hand, from the perspectives of the developed nations, they need not amplify the higher level of issues related to financial mess, which they often pass on to the developing nations for minimizing the effects of the financial crisis.
One of the prominent effects of the financial crisis on to developing nations is evident from the reduction rates of the exports at the international market. This is also causing hamper in the growth rate of the international trade market. In the financial year of 2009, the growth rate of the international trade market was calculated to be of 4.2%, which came down from the 9.4% in 2006 (Sundaytimes.lk, 2018). Nevertheless, this fall in the trade market is more in the case of developed nations than that of the developing countries. However, as the export of the essential commodities will seem to be affected due to this fall there is higher risks of consumer product shortage in the domestic markets. There also will be shortages in the investment market as less cash will flow within the domestic market as foreign capital. Investment in each of the portfolio will fall as the foreign nations will not be willing to take the risks of the business expansion. In case of the nations like India, the nation is highly dependent upon the investment in the form of FDI. This has even increased since the introduction of the economic reforms of the country in 1991, where the government introduced new policies resulting in the open economic market (Chari and Banalieva 2015). Hence, the shortages of the foreign cash flow will highly affect the progress of the nation by lowering the rate of employment and increase in the pricing of the daily commodities.
On the other hand, developing nations, who had got higher capital flow during the period of crisis, will have to pay greater interest rates thereby increasing the risks of aversion. One of the major cause of slowing down of the export market is due to the reduced rates of demand for the daily commodities. The findings of Dorn et al. (2017), have suggested about the fall of the labor market that has caused reduction within the labor pricing of the foreign nations. This can therefore enhance upon the rate of unemployment in most of the developing nations.
Most of the developing nations like India and China entered the last period of economic crisis with greater strength compared of 1980s. The main cause of strength is due to the expanding the capability of the macroeconomics that includes the better positioning of the fiscal matters, which is now less vulnerable. This according to Haas and Lelyveld (2014), is achieved by prevention of the financial contagion from crippling domestic banking and non-banking financial sectors. Due to higher levels of interconnection of the financial firms in all parts of the world, the effects of the crisis arrived within the real economy. There are also reports of declining of the stock market, thereby resulting in the sharp fall in the value of currency. Due to the substantial rates of decline of the currency rates of the major nations like US, developing countries like India has been able to import petroleum products at much cheaper rates.
The findings of Rishi and Kulkarni, (2000), have highlighted upon the strategies that has been adopted by India to deal with the issues of global financial crisis. The strategies also act as important lessons from the global perspectives that will help to deal with the issues of global crisis. India has been able to manage the crisis of indebtedness more effectively that has resulted in their better ability to deal with the issues related to the global financial crisis. Compared to the economy of other south east Asian countries, India has been able to better manage the crisis owing to their strict economic reforms and financial control.
Due to the structural change in the Indian economy in 1991, there has been an increase in volume of foreign cash flow. This process continued for longer period resulting in increase in import. The government in India has promised about foreign investment that can help in the matter of bringing about the economic reform. However, with the onset of the financial crisis, the government has to face the risk of low foreign cash flow. This challenge has been overcome by the Reserve Bank of India by devaluing the Indian currency. This devaluation has ensured that the value of Indian rupee in the Global market is influenced by the market forces rather than the policy implemented by the government. The main causes of the negative effect within the economy of the Southeast Asian region during the period of financial crisis, is mainly due to the mismanagement within the international trade business and foreign cash flow. This has resulted in Rapid growth in demand of the domestic suppliers resulting in devaluation of the local currency. From the data obtained in the debt statistics, suggest that Indian economy is in a healthy position in spite of the financial crisis. This is mainly due to the extra cautious nature the Government employees during the process of external debt (Nath 2017).
The effects of the financial crisis were more prominent within the banking sector, where the organizations have direct ownership share with USA. Nevertheless, due to the banking reforms that were introduced, the government of India has been able to have more control over the financial matters. In spite of this effective measures, one of the major issues that has been encountered within the Indian economy is high rate of domestic inflation. The flow within the stock market also got hugely affected by the same and the Sensex fell down by a record margin (The Hindu Business Line, 2018).
The average momentum of the national GDP growth rate decreased significantly due to the effects of the financial crisis. The average growth rate was of 6.7% that got reduced from 9% per annum after the year of 2008-09 (Rajesh 2017). Another major issues that are faced during the process of financial crisis is due to volatile cash flow. This has been one of the major issues that are encountered by the nations that is considered as emerging economics. In the given regards, the approach of India has been pragmatic. This has helped the nation to maintain transparency with the capital market. The government also encouraged short term capital investment that has helped in the matters of swift recovery of the matters economic reforms. The equity flow also has been liberal, which quite different compared to all other nations of emerging economies. In spite of the burden from the high thrust of economy, it was possible to control upon the economic values. The price based economy was also implemented that has helped in the matters of dealing with the issues of inflation that was responsible of elevated cost of all daily commodities. The government has also initiated the step of commodity management, that has helped in the matters of dealing with the quality of the prices (PIIE, 2018). The value of the Indian stock and the market value has currently been able to overtake that of Canada, who has been considered as one of the major victim of the global financial crisis of 2008 (Refer to Appendix).
The debt management strategy is also one of the major economic policies of the Indian Government, which is aimed to deal with long-term risks. The scope of the debt management is mainly restricted to all type of financial transactions within the domestic market of India. This is also help the government to analyses all form of upcoming risks. The main pillars of the debt management include low cost materials, risk mitigation plan and higher market development. Hence, it is possible to implement low cost budget plan for enhancing the profile consumer market. Risk management tool, which is the major part of the sovereign debt, it is possible to implement effective plan for each portfolio. Low debt values, can also help in the matters of keeping low rate of interest. It is also possible to protect the economic growth of the country from fluctuation of foreign capital flow. This is achieved by managing the values of Indian rupee. The government also encouraged stable domestic investors, which will ensure smooth capital flow within the consumer market (Dea.gov.in, 2018).
One of the main aim of public debt management is to help recovery of macroeconomic policy. In order to deal with a large size economy like India, it is important to establish effective strategy of portfolio management. This will help to deal with the individual level of issues within each sector of manufacturing and service sector. An effective debt management strategy will help to deal with high level of risks needed for dealing with the challenge of financial stability and internal debt.
Conclusion
The financial crisis of 2009, has affected the economic growth in all major develop Nations including US. The crisis was initiated due to the bankruptcy in Lehman brothers American Investment Agency. The emerging Nations like India and China has also been usually affected due to the onset of the financial crisis. This is mainly due to the fact that the flow of foreign cash within the developing Nations has ceased. The effect of financial crisis was more evident in the developed nations as they have to face the direct impact. Due to the effect of globalization the consequence of financial crisis quickly spread across several Nations. It is also important to highlight upon the fact that most of the Nations having international trade relationship has synchronized upon their business cycle. This also has significant effect upon the dynamic correlations and therefore it is possible to measure the overall growth rate of national economy.
The effect of globalization is prominent in developing Nations like China and India, where the GDP has raised significantly due to the huge flow of foreign cash. The increased flow of international trade, which is also considered one of the significant effect of globalization, has helped to ensure that the Nations like India and China are able to import high end consumer product at lower price.
From the findings of the report it can be concluded that inadequate capital flow, is one of the major cause of financial crisis that was initiated in American institution. The banking system has also not been monitored properly that has affected the international trade business
As the findings suggested, the reform in the Indian banking system is one of the major lessons that can be taken from the developing Nation. As The Reserve Bank of India devalued the Indian Rupee, it was possible to have proper cash flow with in the consumer market that has made up for the issue of low foreign capital investment. Due to the internal economic reforms that has helped to established the free economic nature of India, the nation has been able to more effectively manage the consequence of financial crisis compared to other Southeastern Asian countries. The Economic reforms in India started in the year 1991, which is mainly marked by introduction of high volume of foreign cash flow. It is also helped in the Rapid growth of domestic suppliers, which acted efficiently during the period of financial crisis.
It is also possible to take lessons from the debt management strategy, which is believed to mitigate all forms of risks that occurred due to the onset of the financial crisis. The Indian government has also managed to implement cost effective financial budget plan, which helped to deal with high cost of domestic product that is the result of higher inflation. The pillars of the debt management strategy can also be regarded as a major lesson. This also has been effectively managing the consequence of falling of the stock values. Hence, the overall planning in the financial and banking policies has helped India to better deal with the effects of financial crisis. The strategies can be adopted by most of the other developing nations that can help them to take preventive measures for all future financial crisis. This can also help to better predict all onset of the financial crisis.
Reference
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