{
  "title": "India: Linked or De-linked from the Global Economy?",
  "publication": "IMF Blog, October 25, 2011",
  "sourceUrl": "https://www.imf.org/en/blogs/articles/2011/10/25/india-linked-or-de-linked-from-the-global-economy",
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  "summary": "Author: Anoop Singh",
  "sections": [
    {
      "heading": "Overview / Context",
      "content": "- Author: Anoop Singh\n- Date: October 25, 2011\n- Key framing:\n  - Global outlook described as “fairly uneven and uncertain.”\n  - Risks building up especially in Europe, including “an extreme scenario with financial disruption.”\n  - India historically less prone to external forces than many others, but still exposed and in need of a “new wave of reforms.”"
    },
    {
      "heading": "De-linked — why India can remain relatively insulated",
      "content": "- Growth projection:\n  - “In our latest Regional Economic Outlook for Asia, we expect India to grow by about 7½ percent in 2011 and 2012, only marginally below its estimated potential.”\n- Structural features supporting partial insulation:\n  - India is less open to international trade than most other economies in the region.\n  - Rural consumption is “fairly insulated from the world economy.”\n  - India’s exports are “less dependent on advanced economies,” and are “more diversified—both geographically and in terms of the products it sells—than its neighbors and competitors.”\n- Implication:\n  - A protracted slowdown in advanced economies would lower India’s growth somewhat, but growth is expected to “still remain robust.”\n  - In that scenario, the primary domestic challenge highlighted is elevated inflation."
    },
    {
      "heading": "Linked — channels of vulnerability if global financial stress intensifies",
      "content": "- Historical evidence of financial integration and vulnerability:\n  - India’s financial markets came under considerable pressure in 2008; investment “dipped substantially” as a transmission channel.\n  - India’s stock market is described as “one of the most correlated in the region with the VIX,” linking it to global risk aversion.\n  - The 2008 Lehman episode is invoked as an example of global financial contagion.\n- Present-day vulnerabilities (as of the article):\n  - India has a current account deficit.\n  - Some major Indian corporates are global players relying more extensively on external debt issuance.\n  - Foreign investors have more extensive holdings in the Indian stock market.\n- Implication:\n  - In an extreme scenario with contagion and further financial shocks, India would likely be hit materially."
    },
    {
      "heading": "Time for reform — policy recommendations and priorities",
      "content": "- Policy space and constraints:\n  - India “has the tools and the experience to deal with a repeat of 2008,” but “likely have less policy space now,” much of which was used during the initial crisis response.\n  - Inflation remains above the Reserve Bank of India’s comfort zone, constraining monetary policy flexibility.\n- Fiscal policy and buffers:\n  - Rebuilding buffers to recreate policy space is emphasized; “fiscal consolidation remains pivotal.”\n  - Recommended shift in budgetary expenditure composition: away from untargeted subsidies (examples given: fuel and fertilizer) and toward infrastructure, health, and education.\n- Structural reforms to boost investment and domestic demand:\n  - Proposed reforms include:\n    - Introducing the GST.\n    - Improving the business environment.\n    - Liberalizing the labor market.\n    - Furthering trade and financial reforms.\n  - Rationale: Strengthening domestic demand and boosting investment will help India compensate for external headwinds and sustain growth momentum.\n- Historical precedent:\n  - Reference to 1991 reforms prompted by a balance of payments and fiscal crisis, which “have continued paying off to this day.”\n- Conclusion:\n  - “Today’s risks can be translated into tomorrow’s reforms and growth momentum.”\n\nIMF blog post: India: Linked or De-linked from the Global Economy? — Anoop Singh, October 25, 2011\n\n---\n\n\n References\n\n- outlook for the world economy is fairly uneven and uncertain\n- Regional Economic Outlook for Asia\n- https://www.imf.org/wp-content/uploads/2011/10/apd-reoindia-trade-diversification.jpg\n- https://www.imf.org/wp-content/uploads/2011/10/apd-reoindia-stock-market.jpg\n\nSource: https://www.imf.org/en/blogs/articles/2011/10/25/india-linked-or-de-linked-from-the-global-economy"
    }
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    "[Markdown version](/en/blogs/articles/2011/10/25/india-linked-or-de-linked-from-the-global-economy/index.md)",
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    "Authors: Anoop Singh",
    "Published: October 25, 2011",
    "Author: Anoop Singh",
    "Date: October 25, 2011",
    "Key framing:",
    "Growth projection:",
    "Structural features supporting partial insulation:",
    "Implication:",
    "Historical evidence of financial integration and vulnerability:",
    "Present-day vulnerabilities (as of the article):",
    "Implication:",
    "Policy space and constraints:",
    "Fiscal policy and buffers:",
    "Structural reforms to boost investment and domestic demand:",
    "Historical precedent:",
    "Conclusion:",
    "[outlook for the world economy is fairly uneven and uncertain](http://blogs.imf.org/2011/09/20/strong-policy-action-the-essence-of-restoring-global-economic-hope/)",
    "[Regional Economic Outlook for Asia](http://www.imf.org/external/pubs/ft/reo/2011/apd/eng/areo1011.htm)",
    "[https://www.imf.org/wp-content/uploads/2011/10/apd-reo_india-trade-diversification.jpg](https://www.imf.org/wp-content/uploads/2011/10/apd-reo_india-trade-diversification.jpg)",
    "[https://www.imf.org/wp-content/uploads/2011/10/apd-reo_india-stock-market.jpg](https://www.imf.org/wp-content/uploads/2011/10/apd-reo_india-stock-market.jpg)"
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