How India Survived the Financial Crisis

NEW DELHI – As the world economy begins to recover, Indians are looking back with particular satisfaction at how they coped with the recent crisis. Despite an unprecedented global recession, India remained the second fastest growing economy in the world. Whereas most countries suffered negative growth in at least one quarter over the last two years, India’s GDP grew by more than 6% throughout this period – and by 7.9% in the last quarter of 2009.

India’s achievement is all the more striking given that the Pakistani terrorist attacks on Mumbai – India’s financial nerve center and commercial capital – in late November 2008 came in the midst of the crisis. The terrorists dented the worldwide image of India as an emerging economic giant, a success story of the era of globalization, and a magnet for investors and tourists.

Indeed, in late 2008, foreign investors did withdraw $12 billion from India’s stock markets. But India’s resilience in the face of adversity, and its mature restraint in the face of violent provocation, encouraged investors to return. Foreign direct investment totaled $27.3 billion in 2008-2009, despite the global financial crisis, and reached $1 billion in just one week in May 2009.

India’s ability to stave off the economic gales was helped by the fact that it is much less dependent than most countries on global flows of trade and capital. India relies on external trade for about 20% of its GDP (the figure for China is roughly double). The country’s large and robust internal market accounts for the rest. Indians continued producing goods and services for other Indians, and that kept the economy humming.