Opening its doors to globalization in the nineties led to the miraculous growth story that India is today. During the 1990s India was one of the fastest growing economies in the world and has since seen a long and unprecedented period of welfare enhancement. India's trade as a proportion of GDP rose from 13.1 per cent in 1990 to 20.3 per cent in 2000.
The last decade has been one of the most tumultuous and volatile times for both, the global as well as Indian economy. We witnessed, the most gruesome terror attacks, shocking financial scams were unearthed and some of the world's strongest financial institutions crumbled like a pack of cards. The Indian economy, however, continues to stand tall and unfazed and will continue to sail through these turbulent waters.
Economic reforms picked up pace in 2000-04 and fiscal deficits trended down after 2002 and there was a based upswing in Indian industrial output and investment from the second half of 2002. India's Tenth Five-Year Plan (2002-07) targeted an annual growth rate of eight per cent. Along with this growth target, the government also laid down targets for human and social development. A reduction of the poverty rate by five percentage points by 2007; providing gainful employment to at least those who join the labour force during 2002-07; education for all children in schools by 2003; and an increase in the literacy rate to 75 percent by March 2007.
Reforms taken by the government
The government of India introduced a scheme called the States' Fiscal Reforms Facility (2000-05). Under the Facility, the central government set up a five-year incentive fund 'to encourage states to implement fiscal reforms that could be monitored'. These measures included:
- Measures to improve quality of life through improvement in basic public services such as primary health, primary education, and rural infrastructural services such as electricity, water, and roads.
- Clustering high-tech industries and services (for example, in software parks).
- Setting up Special Economic Zones and Agri-Economic Zones to promote exports.
- Formulating state-level industrial policies to attract investments.
- Power-sector reforms that restructure state Electricity Boards by separating generation, transmission and distribution activities.
Historic market rally
With India's growth roadmap looking strong, the Indian courses reflected investors' faith in the economy and the Sensex rallied to 10000 points, the amazing rally continued for the next 19 months with the index peaking at 21000 on 8 January 2008.
India's GDP before the global economic downturn
The world economy rebounded strongly till 2006; the net result was a decline in the gross fiscal deficit from almost 10 per cent of GDP in 200-02 to 7.5 per cent in 2004-05 and an even larger decline in the revenue deficit from 7 per cent to 3.7 per cent of GDP.
US subprime crisis shakes global economy
The beginning of 2006 saw the US housing bubble burst leading to sub-primes crisis that sunk most major economies in the world. Since 1 January, 2008, owners of stocks in US corporations suffered about $ 8 trillion in losses, as their holdings declined in value from $ 20 trillion to $ 12 trillion. Some of the world leading financial institutes and banks suffered heavy losses and some of them were even declared bankrupt.
Global downturn mars investor sentiment in India
In the third week of January 2008, the Sensex experienced huge falls along with other markets around the world and on January 21, 2008, the Sensex saw its highest ever loss of 1,408 points at the end of the session on high volatility as investors panicked following weak global cues amid fears of a recession in the US.
The next day, the markets index went into a free fall. The index hit the lower circuit breaker in barely a minute after the markets opened at 10 AM. Trading was suspended for an hour. On reopening at 10.55 am, the market saw its biggest intra-day fall when it hit a low of 15,332, down 2,273 points.
How Indian authorities helped India stay afloat amid crisis
But strangely, when the global economy tumbled on fears of the US recession, India managed to stay afloat with only some minor fluctuations.
How did India stay unaffected?
- The banking system in India was so well established that India didn't face any mortgage issues like the USA did. Even as Greenspan, got swept away by the "irrational exuberance" accompanying the real estate and sub-prime mortgage bubble, India's then RBI governor Dr Reddy went the other way and tightened lending rates, curtailed securitization and derivative products, and increased risk weightings on commercial buildings and shopping mall construction, as a real estate bubble took shape in India.
- India is not completely dependent on the US or other countries for exports and import of products
- Employment in India also remained quite steady
- Also, nationalizing of major Indian commercial banks some four decades ago helped in averting recession to some extent
India's GDP post US subprime crisis
Post the economic downturn the year 2009 saw a significant slowdown in India's official GDP growth rate to 6.1% as well as the return of a large projected fiscal deficit of 10.3% of GDP which would be among the highest in the world.
Historically, from 2000 until 2011, India's average quarterly GDP growth was 7.45 per cent reaching an historical high of 11.80 per cent in December of 2003 and a record low of 1.60 per cent in December of 2002. The year 2009 saw a significant slowdown in India's official GDP growth rate to 6.1% as well as the return of a large projected fiscal deficit of 10.3% of GDP which would be among the highest in the world.
- In May 2000 the central bank intervened on the foreign exchange markets and announces moves to stabilize the rupee after the currency hit a record low against the U.S. dollar
- India joined a select group of six countries when it announced regular summits with the European Union in June 2000
- In 2001 a massive earthquake, measuring 7.9 on the Richter scale, hit Gujarat taking more than more 30,000 lives
- On 26 December, 2004 --The strongest ever earthquake in past 40 years, measuring 9.0 on the Richter Scale originated from the Indian Ocean , creating tsunami tidal waves that swept across much of the coastlines of South Asia. More than 15,000 reported killed in India and 250,000 across the globe.
The destruction caused by the Tsunami eventually was over $1.6 billion. This exceeded the estimated losses of US$ 600 millions as originally expected by the officials. The Indian fishing groups were adversely affected by the Tsunami. The most notable damage was to that of Nagapatnam, a fishing town in Tamil Nadu. Many fishing vessels were damaged and the cost to repair them was estimated to be over US$125 million. This amount also included buying of new nets and other accessories required for fishing.
- The Telecom Regulatory Authority of India slashed tariffs for international bandwidth prices by up to 70% in 2005.
- In 2006, Indian steel conglomerate Tata Steel took over Anglo Dutch steel maker Corus in the largest ever Indian takeover of a foreign company making Tata Steel the world's fifth-largest steel group. Two years later in 2008 the group's auto arm Tata Motors bought two iconic British automobile manufacturing companies, Jaguar and Land Rover, from Ford, their American owners.
- On January 2009 Ramalinga Raju, founder of Satyam Computer Services, a leading Indian outsourcing company that served more than a third of the Fortune 500 companies, confessed that he inflated the balance sheet by Rs 7000 crore, building up to India's largest-ever corporate fraud. This resulted in a blood bath at Dalal Street and threw the industry into turmoil.
- The 2G spectrum scam came to light after the auction of airwaves for 3G services in April 2010 which amounted to Rs 67,719 crore to the exchequer. The scam involved the issue of 1232 licenses by the ruling Congress-led UPA alliance of the 2G spectrum to 85 companies including many new telecom companies with little or no experience in the telecom sector at a price set in the year 2001.
This past decade saw a multitude of scams and terrorist attacks shake the Indian economy but the economy continues to remain one of the fastest growing in the world. In fact in Finance Minister Pranab Mukherjee's words in the Budget speech of 2009-10: The structure of India 's economy has changed rapidly in the last ten years. External trade and external capital flows are an important part of the economy and so is the contribution of the services sector to the GDP at well over 50 per cent.
However, the country is also rapidly becoming costlier as inflation rates still continue to spiral to dizzying heights. The central bank has been working incessantly to reign in the surging price index and the Prime Minsiter too keeps assuring us "inflation will be tamed" . With a little help from the government in the form of resolving supply side issues and with the easing of global crude oil prices inflation rates may moderate further albeit still above the RBI's comfort zone.
India's yawning fiscal gap too continues to plague the economy but the government has promised to reign in the fiscal deficit more aggressively. Reforms like liberalisation in retail and introduction of foreign investments in Indian mutual fund will also boost the Indian economy.
Today, the US is at the brink of a double dip recession and coupled with the Euro crisis, the global economy is once again threatened into a freefall. However, Indian politicians ans analysts alike expect India's GDP to continue to grow at a robust 8.5 per cent, such is their faith in the strength of India's economic fundamentals.
Quirks and Quotes
This era has seen the most entertaining budget speeches from finance minister Pranab Mukherjee. His strongly Bengali accented English is the butt of most jokes. Hear him here.
He found inspiration in Mahatma Gandhi and Kautilya and quoted from them in his 2009 Budget speech. "Just as one plucks fruits from a garden as they ripen, so shall a King have revenue collected as it becomes due. Just as one does not collect unripe fruits, he shall avoid taking wealth that is not due because that will make the people angry and spoil the very sources of revenue."
India's proved to the world in the last 64 years that nothing in this world can really shake its economy -- be it recession, tsunami or scams. It has in fact, by hook or by crook (quite literally) risen to the occasion and come out smiling, rock solid as ever -- a base our Finance Ministers extraordinaire Manmohan Singh and Yashwant Sinha gave us. We are still working towards achieving a double-digit growth, but given our resilience and power, India should figure in the world's 'developed nations' list sooner than we dreamwith some inspiration from our current Finance Minister Pranab Mukherjee who once said: "With strong hearts, enlightened minds and willing hands, we will have to overcome all odds and remove all obstacles to create a brave new India of our dreams.
(With infographics from Deepak Shenoy)
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