Globalization has paved the way for lot of opportunities, however, has also crea

ted new difficulties before Indian market. Prior to the advent of globalization,
Indian market condition was more or less static with a fixed opportunity for gr
owth. However, dynamicity in market came with the globalization paving the way f
or unlimited opportunities in each and every sector. The opportunities that came
before us were innumerable, but also paved the way for such problems which were
unforeseen before. The latest economic crisis which started with the bankruptcy
of a well-known US bank, the Lehmann Brothers also affected the Indian economy
to a large extent. It made several onslaughts in the financial sector of Indian
economy which grew limitlessly in the last 2/3 years within a very short span.
Growth of the Financial Sector within a Short Time- SENSEX is a well-known finan
cial index which gives a quick preview of the health of the financial sector of
the country. Till 2004, though the SENSEX was increasing, however, the growth wa
s more or less reasonable and corresponded to the economic growth rate of the co
untry. Till 2004-2005, the stock and financial markets were mainly invested by t
he Indian investors and the major foreign investments were yet to be started to
a large extent. However, the situation started changing in the post-2004 time-pe
riod when the un-invested foreign capitals started flooding in the Indian econom
y presuming the high growth potential of the financial market. Flooding of forei
gn money started raising the stock prices limitlessly resulting in an artificial
demand for those stocks. Seeing the stiff rises in the stock prices, more and m
ore investments flooded in and investors made huge profit swimming in the flood
of the foreign capital. These resulted in the raising the SENSEX from a mere 700
0 in 2005 to 21000 in January, 2008. Investors in the stock market made unlimite
d profit resulting in the demand for luxury items and it also ultimately helped
in the flourishing the housing, automobile as well as other related sectors. An
economic boom came which was largely initiated by the flood of foreign investmen
ts in the Indian market.
Problem in the US Economy- Problem started in the US economy with the non-repaym
ent of the loans and subsequent bankruptcy of the major US Bank, the Lehmann Bro
thers. That was start of the present world-wide economic crisis. Huge amount of
loan remain unpaid in US subsequently creating a situation of bankruptcy for the
major US Bank as well the insurance giant the AIG Insurance and thereby startin
g turmoil in the US Economy. The US investors which invested huge amount in the
foreign markets presuming its growth opportunities started drawing their capital
to guard themselves in the volatile market condition of their own country. What
followed was the huge turmoil in the world financial market.
Effect on the Indian Stock and Financial Markets- When foreign investors started
drawing their capital from the money markets, this automatically resulted in th
e decrease of the value of the shares as the demand for the shares were gone and
these resulted in the sharp decrease in the share prices. When the share prices
started dropping more and more Indian investors started selling the shares fear
ing sharper drop in the prices and eventually resulting more decrease in the pri
ces. These resulted in the decrease of SENSEX from 21000 to 8000 with very short
span of time. These sharp drops brought a sense of insecurity among the potenti
al investors and it created a huge hindrance for more investment in the stock an
d financial markets.
Direct Effect on Indian Economy- However, the turmoil in the financial sector ha
d little direct effect on the Indian economy. The main reason lies behind the ba
sic character of the Indian economy. 80 percent of the Indian middle class popul
ation is not concerned with the turbulence of the share market. They were not be
nefitted at all with the huge growth of the financial sector in India and the ga
in from the boom in the financial sector did not reach them. However, with the b
oom in the economy the sharp rises in commodity were affecting them but it was l
imited to that extent. However, a very small section of the population who were
involved in the share-trading got benefitted hugely from this boom and their sta
ndard of living took a huge turn. When the turmoil reached Indian stock markets,
this minority section was affected hugely. Direct effect of the turmoil has fal
len on them. So, in the foreign news-papers, it is widely said that the present
crisis can be termed as Rich-man s Crisis in India. Our economy in general was compl
etely unaffected by it directly.
Indirect Effect- Though, the world financial turmoil could not affect Indian eco
nomy directly but it has the ability to pose problem. The main reason behind it
is the huge dependency of the Indian IT industry on the US Market. So the turmoi
l in the US market can create the huge job-cut in IT Sector. Moreover lack of de
mand in automobiles and housing sector due to disturbed market condition may lea
d to the job-cut in these sectors too. These effects will be more and more visib
le and the Indian economy has started showing these signs though presently not i
n a distinct way.
Steps Undertaken to Nullify the Crisis- The major step taken by the Government w
as to cut in the CRR rate by the RBI to facilitate more liquidity in the Indian
market. This step showed some responses with marginal gain in the SENSEX values.
Though it had not showed a huge sign of the solution to the financial crisis. H
owever, the banks have started dropping the house-loan as well as the car-loan r
ates in order to generate interest among common people to go for investment in h
ousing and automobiles. More and more reforms are being planned to generate fres
h air in the financial market.
Picture will be clearer during the early 2009. Time will tell how fast Indian ec
onomy can be able to adapt to the changing market condition and can be out of th
e present world-wide financial crisis.