Global credit crisis: Is India vulnerable too?

Indian growth story remains on course amidst turbulent global scenario

As displayed in exhibit 1 here, India with its ability to maintain a high growth rate of more than 6% even during the ‘troubled’ past year and half, where the GDP growth of developed economies such as the US and leading European countries nosedived, is definitely not vulnerable to the global credit crisis to the extent the other export driven global economies are.

Supporting to the fact is unwavering global investors’ confidence in the Indian opportunity. This is captured in the same exhibit, in the form of continuously growing foreign direct investment to the country between 2005/06 and 2010/11 (CAGR of 41%).

Population: a blessing in disguise for India Inc.

One of the underlying factors acting in favour of India is its healthily growing huge population base of close to 1.2 billion[1]; this results into a huge internal market with high untapped potential at present, for various products and services. This has led to a comparatively lesser dependence on exports. Exports are roughly 15% of the GDP[2].

India’s lower dependence on exports is acting in favour of India

Though in the face of credit crunch India’s IT services exports may have suffered strongly during this crisis period, the extent of this blow appears to be low overall. It is equally important to note that though IT and ITES are perceived to be the leading contributors to Indian exports, exhibit 2 here clearly suggests that lower or declined growth registered by Indian IT exports should not impact India’s over all economic growth due to its marginal contributions.

In light of the above factors, Indian economic growth appears to be relatively unaffected by the global financial turmoil.