The role of state in managing domestic business against global crisis

The global financial crisis originated in the U.S. which surfaced in 2007 with the failure of a few leading institutions and most notably Lehman Brothers, which led to freezing up of several markets including the overnight inter-bank market with a sharp jump in defaults and foreclosures. The effect is being witnessed in all major economies of the world, financial institutions in Europe and to a much lesser extent in East Asia. The global slowdown has also affected the business climate in India and the growth rate of all the industries within. In India, the adverse effects have so far been mainly in the equity market because of reversal of portfolio equity flows, and the consequent effects on the domestic forex market and liquidity conditions.

The macro effects have so far been muted due to the overall strength of domestic demand, the healthy balance sheets of the Indian corporate sector and the predominant domestic financing of investment. Economists feel, the large Indian domestic market can keep fuelling growth of the Indian economy, though at a lower pace, despite financial crisis leaving the US and Europe reeling under recession. The Indian domestic market is so big that if there is some pause in the global market, it will not affect too much the Indian corporates. India must adopt a strategy of self-reliance to protect the domestic industry for economic and social growth besides engaging in global trade. In my paper my objectives are to justify the argument that globalisation or global trade is beneficial for India but at the same time we should equally concentrate in strengthening the domestic market; and we should encourage those industries for free trade in global market which are potentially strong and protect those industries which are infants and should wait until they are not self-sufficient to compete openly in the global market and with some suggestions regarding the policies the govt. should adopt.