The Recession And The Credit Crunch Of 2008

1927 Words8 Pages
International Business Economics

The recession and the credit crunch of 2008 have affected almost all the countries in the world. It has been known as one the worst financial crisis happened since the Great Depression of 1929 – 1930. This paper aims at comparing the economies of China and India in the view of the recession of 2008. India and China both are emerging economies of the 21st century. “The emerging market economies are characterized as transitional, which means that they are in the process of moving from a closed to an open market economy” (Siddiqui, 2009, p.1). Together, China and India accounts for a population of 2.5 billion people (Sree, 2013). Hence both the countries play a major
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In 2013 the total exports for India was at $313.2 billion whereas the import stood at $467.5 billion (CIA, 2014). India followed the Adam Smith model producing only what it was efficient at and imported the rest. There started a reversal in capital inflows which hit the export demand and posted a crunch in the domestic markets leading to a decline of more than 2% in India’s GDP in the fiscal year 2008-2009 (Kumar & Vashisht, 2009). In 2008 India was already experiencing a high inflation rate, which reduced expenditure in the country. To address the crisis and its affects the Indian government and the banks introduced fiscal stimulus and relaxed monetary policies in order to boost domestic demand. The market interest rates increased to 20% and above suddenly. India had received a fiscal stimulus of $80 billion injected into the economy to ensure liquidity. India was loosing badly on FDI’s and remittances. During 2008, India’s FDI inflows experienced a negative growth of 2% (Kumar & Vashisht, 2009). Remittances also are a major part of the capital inflows of the country, in 2008 the remittance inflow declined by more than 29% (Kumar & Vashisht, 2009) as every country first wanted to protect jobs of its home citizens and there was a severe lay off. Exports to USA is a major component of India’s GDP. After a sharp decline in the demand from the US, India had to lay off more than 300,000 workers instantly. There was a decline in exports of India by
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