Global Financial Crisis Opportunities for India

Abstract

The peaking of home sales in USA in late 2005 can be traced as the starting point of the current crisis. When the sub prime crisis’ erupted in mid 2007, the entire edifice began to collapse. The crisis began in US but the mortgage backed financial products had been dispersed around the world culminating in the ongoing global financial crisis. The so called ‘financial innovations’ had advanced to such an extent that important financial products such as Mortgaged Backed Securities (MBS) and collateralized Debt obligations (CDOS) were made so complex and so opaque that they became inherently non transparent. The role of credit rating agencies in giving absurdly high ratings to these illiquid, non transparent and structured financial products led to the global financial boom and the resultant current crisis. The failure of US regulators to tighten capital and lending standards, when abundant capital inflows with loose Fed policies ignited the credit boom. The failure of China to move more quickly to encourage higher domestic spending, commensurate with its higher income added fuel to the fire. Despite all this ,India has been able to avert a major disaster. The paper strives to discuss the factors that made India to get away lightly and the opportunities that can be capitalized upon by India, from the current crisis.