The impact of western debt crises on India

In recent years the global economy has been experiencing a critical phase in terms of decline in gross national products, rise in unemployment levels, and slump in investment activities. Such global scenario has thus affected the global growth and welfare. The epicenter of these problems is the economic and financial crises of west. The crises originated from deceptively small sources of west - sub-prime lending in the US in 2008 and government debt in Greece in 2011. These crises have wobbled the backbone of the world economy. India being relatively integrated with and open to the global economy has been affected. Currently, the national economy is passing through a phase of high inflation, exchange rate crisis, volatile capital market, discouraging investment scenario and increase in fiscal deficits. Thus, the present study is an attempt to make a post-mortem of the debt crises of west and impacts on Indian economy. The study suggests that there should be effective supervision of all financial activities, both private and public, if the country is to be crisis resilient. Besides a robust regulatory framework that integrates a system-wide approach and has built-in buffers to smooth cyclical volatility should be instilled. Since the depositors are the most sensitive groups during crises and deposit insurance systems have the ability to safeguard the depositors interests, such systems should be encouraged.