Financial Crisis in Europe will lead to adverse economic conditions in India
Financial Crisis in Europe will lead to adverse economic conditions in India
Introduction
Emerging Asian markets such as China and India coped with the outcome of the global financial crisis of 2008 with fortitude. However, the slowdown did impact the job market in India and led to changes in the growth of the economy. India is fighting inflation and slow growth rate even as the value of the rupee against the dollar continues to be shaky after the steep fall.
The financial crisis in Europe will lead to adverse economic conditions in India and other nations. This is because the world economies are linked to each other and businesses are functioning in partnership with foreign funders. FDI is an important impetus for growth and this could be adversely affected following the European crisis.
Viewpoint
• The situation in countries like Greece and Portugal is desperate right now. Though rich European countries like Germany as well as the G-20 countries are making attempts to prevent a banking collapse in these EU nations, the present scenario is pretty gloomy. In the event of a financial crisis in Europe, and the collapse of banking institutions here, the supply of foreign credit to India will decrease drastically.
This can create pressure on the capacity for generating funds for investment in our nation.
• Another problem is that the world market will shrink as a result of the financial crisis. This can harm emerging markets such as India where many companies are trying to establish global presence. Indian companies will have to compete with international brands for a larger share of the domestic market. This may cause problems for companies, especially those in the manufacturing or service sector.
• Europe is a major trading bloc for India. Austerity measures in EU nations arising from the financial crisis may affect export companies from India in a very negative manner. Furthermore, if there is insolvency of European banking institutions, capital will go back and this will case the rupee to weaken further. A falling rupee will hurt profit margins of the companies in a sharp manner.
• The world is interconnected in more ways than one can imagine. What happens in one corner of the world has huge implication for other countries. Technology has made the world smaller, but it has also created an economic environment where a banking collapse in one region can have grave implications for the economy of another.
The European financial crisis will affect all of the trading partners of EU nations including India, as there are numerous negative implications of this.
• When the recession hit the world in 2008, a crisis originated in the US and it spread to the rest of the world. It was felt that Indian trade would flourish despite the recession but the very opposite happened.
Following the crisis in September 2008, Indian trade was negatively impacted. For 13 long months from October 2008 to 2009, growth was negative and Indian trade suffered drastically.
• Indian companies rely a lot on foreign funding, collaborations and partnerships. These will definitely be affected negatively following a financial crisis in Europe.
Conclusion
India needs to make important reforms and ensure that our economy is insulated from the effects of global crises. It remains to be seen whether there is a political leader in our country who has the courage and the foresight to channel all our resources and help Indian companies to leverage the domestic consumer market to its fullest extent.
In the event that there is not, global financial crises such as those in the US and Europe will continue to play havoc with our markets and our economy.
Discussion
- Financial Crisis in Europe will lead to adverse economic conditions in India -Lubna Lakdawala (04/02/14)
Financial Crisis in Europe will lead to adverse economic conditions in India
The global financial crisis originated in the US and then spread to Europe. Financial crisis in Europe is an ongoing crisis which began when a group of 10 European banks went bankrupt and asked for financial assistance. The financial crisis in Europe can have an adverse effect on developing nations like India.
The financial crisis in Europe has resulted in the rise of inflation and unemployment throughout the European countries. Since they are going through a difficult economy the demand from Europe for Indian or foreign goods and skills has reduced substantially. Europe is one of the major trade associates of India thus India’s exports will take a major hit.
Due to the spillover from the financial crisis in the US and then the Europe, there is high inflation in India the interest rates in India have been revised at least more than 6 times in the past year.
Also the depreciation of the European currency is another concern for India, Europe being one of India’s major trade partners, thus the depreciation in the European currency will mean lesser earnings for India. This in turn will result in the recession in the Indian industries. Another important concern for India is that many of the European countries have their units in India. Thus due to the financial crisis there they could slow down or shut down their units in India result in losses, trade deficit along with unemployment.
The financial crisis in Europe will lead to low capital flows in India which basically means the European investor would not be in a position to invest large amounts of money in India. Since India is a developing economy and in need of foreign capital in different sectors such as infrastructure, retail, aviation, education etc.
The tourism industry will be another issue for India as very year Indian tourism destinations witness a surge of European tourists, but due to the financial crisis there will be a reduction in the numbers of tourists arriving in India. Another factor affecting the tourism industry would the dip in the currency rates, the European currency will result in lesser value when exchanged in Indian Rupees.
Experts say that this financial crisis is only a temporary situation and will be over soon. But in actuality the duration of the financial crisis is still uncertain. Thus if the crisis continues further it will create further problems for India as well as the global markets.
