Lehman’s era and the state of the Indian Economy

The process of Lehman Brothers Bankruptcy was not a sudden incident, it was the resultant of US subprime and housing bubble. The saga had been begun since 2002, when American banks and credit institution started lending the loans to the sub prime customers profusely, whose financial credentials were economically not sound.

It took almost six years to show the impact like Lehman’s. Since the major banks like Lehman succumbed to the situation such badly that the whole world started impacted. However, some Asian countries like India, China etc, manage to get least bounce as compare to European and American countries because of their own strong economic penetration in the domestic market such as agriculture, large numbers of consumer, infrastructure and traditional banking system, while issuing the credit. Being a part of the globalization, India also could not save itself to get the hit.

Pre Lehman’s collapse, India was heading towards the double digit growth. Post Lehman, which was not only impacted but also started struggling at 6%. To know, that why India too impacted, we need to understand the Indian economy as well, which can be divided into three parts in the context of GDP as Service sector, Agriculture and Industrial & Manufacturing sector, which contributed 55.7%, 26.5% and 17.8% in 2007-08 respectively. As per the department of economic affairs, in 2007-08, India’s GDP growth rate was 9.0%.

There is no doubt that the service sector is the major constituent of the GDP, which has shown tremendous growth in the last decade. IT and ITES, which is the important part of the service sector, contributed 1.2% in GDP in 1998, while it estimated 5.5 % in FY 2008, which shows the growth of 358.33% in a decade. Needless to say that the industry is completely depend on the USA and other European county, which means if aforesaid countries get any negative bounce, India too can not spared of the hit. Post Lehman, India too showed steep decline in the IT sector, Real sector, insurance and export. Associated people with the IT are one of those biggest spenders in the country. Any down turn on the industry affects the same reaction on Real Estate, Retails and consulting.


Therefore we are required to focus on the following domestic business for getting the pace of the growth, which was in the pre Lehman’s era, as infrastructure, hospitalization, agriculture & allied industries, strong monetary policy, fiscal discipline and optimum utilization of the resources.

Though the export demand shrunk in the western market, due to the large consumer based, India could manage the goods in its market. However, we have still need to focus on the export industry as well. We need to make very balancing difference on the excessive dependency and adopting the growth driven model of export. Since export demand in the western markets


squeezed badly, consequently China’s excessive dependence on exports proved to be liability, while our large domestic market proved to be beneficiary for us.

We are the second largest populated country in the world, which is continuously growing rapidly. Consequently we require more foods and grains to fulfill our own domestic demand. Therefore we rigorously need upgraded tools and technology for not only fulfilling the demand but also for export of the agricultural products. Pathetically, the growth rate of the agriculture sector squeezed by 65% in a year dramatically, as it had a growth rate of 4.9% in 2007-08, However, it was 1.7% in 2008-09. Due to the declination of the aforesaid industries in India, it poised the growth of 6.7%.in 2008-09. The average growth rate of principal corps is only 3.17% in India from 1994-95 to 2007-08. As per the Directorate of Economics and statistics (Ministry of Agriculture, India), only 42.9% agricultural area under the principal crop, in the country was irrigated in 2005-06 and 43.9% in 2006-07. It means more then half of the agricultural land is still at large to get the irrigation facility, which requires very urgent reforms to increase the share of the industry in GDP.

Apart from the industrial development, strong fiscal discipline and monetary policy is a must tool for saving the country during the odd times, as the USA had to infuse approximately $700 bn to bailout the several collapsed industries. However, the government needs to focus on the revenue taxes at the good times to overpower the odd financial situation, and allocates it appropriately, as the government has to step in, while private companies get collapsed financially. Though it was a positive sign of the strong monetary policy in country like India, where there is a second largest consumer for the goods and credits. Not even a single bank blinked its financial credentials, while in USA, it swallowed more then 100 banks and credit institutions. Consequently, we have to maintain the reformative balance between traditional and growth driven modern reforms adopted by the central bank of India.

Conclusively, we are the one of the fastest growing economy of the world, and keep one of the largest base of the consumers, are required to play a pivotal role to eradicate the economical imbalance on the international arena. We have to actively raise and participate for the growth driven reforms internationally.