The Global Economic Crisis of 2008 and Its Impact on Indian Industries

The 2008 global economic crisis, commonly known as the Great Recession, was one of the most serious financial catastrophes of the 21st century. Several factors contributed to the catastrophe, including the US housing bubble, risky lending practices, and insufficient regulatory oversight. The world economy was severely impacted by the crisis, and India was not untouched by its effects.

Cause of the Crisis

The US housing bubble was the primary contributor to the crisis. Lenders started giving high-risk mortgages to customers who wouldn't have been eligible for standard loans as home values rose. Many of these borrowers ultimately fell behind on their payments, which caused the housing market to crash. As a result, the value of mortgage-backed securities and other financial instruments connected to the housing market fell precipitously.

Why in 2008?

The crisis was the culmination of various causes that had been accumulating for several years. Significant economic and financial imbalances, such as massive trade deficits and the buildup of debt by both individuals and governments, existed in addition to the housing bubble.

Responsibility for the Crisis

The culpability for the crisis is broadly shared. 

• Several financial organizations and lenders participated in high-risk lending methods that were not long-term sustainable. 
• Regulatory control was also lacking at the time, which allowed these abuses to go unchecked. 
• The popular notion that property prices will keep rising indefinitely further contributed to investors' and borrowers' equal complacency and lack of vigilance.

Impact on Indian Industries

The impact of the global economic crisis on India's manufacturing sector was severe, with the growth rate falling sharply from 10.3% in 2007-08 to just 3.2% in 2008-09. This decline in growth was primarily due to reduced domestic demand, as well as a significant drop in export orders. The recession in developed countries had a ripple effect on Indian manufacturers, as demand for goods and services reduced drastically.

The Indian government attempted to mitigate the impact of the crisis on the manufacturing sector through various policy interventions. The Reserve Bank of India (RBI), for example, reduced interest rates to stimulate demand for loans and boost investment. Additionally, the government introduced various tax incentives to encourage businesses to invest in the manufacturing sector.

Despite these efforts, the manufacturing sector continued to face challenges in the wake of the crisis. Many companies were forced to reduce production and lay off workers, leading to a rise in unemployment. The government attempted to address this issue through various employment generation schemes, but the impact of the crisis on the manufacturing sector was felt for several years. 

The crisis had a substantial but diverse impact on the Indian industry. Several industries were affected differently.

• For instance, as businesses reduced their expenditure, the demand for their services fell in the IT industry.
• Comparable declines in property prices and a decrease in the demand for new building projects were observed in the real estate industry.

On the other hand, the crisis was advantageous for several industries.

• When customers sought less expensive options to name-brand treatments, the pharmaceutical sector, for instance, observed a surge in demand for generic drugs.
• In a similar vein, the demand for outsourcing services increased as businesses sought to reduce costs by contracting out non-core functions.

Blue Ocean Strategies in India

In the wake of the crisis, Indian companies began to adopt blue ocean strategies, which involve creating new markets and uncontested spaces that are not served by existing industries. For example, companies such as Flipkart and Snapdeal capitalized on the growth of e-commerce, creating new markets for online retail in India. Similarly, companies such as Ola and Uber disrupted the traditional taxi industry, creating new markets for ride-sharing services.

Conclusion

In conclusion, the 2008 global financial crisis had a massive influence on the Indian economy and its sectors. Despite the recession's severe effects on certain industries, others were able to flourish. The crisis also prompted the development of blue ocean strategies, which boosted Indian businesses in building new markets and upending established sectors. As we navigate the challenges of the global economy, it is critical to learn from the past while also continuing to innovate and adapt to new conditions. 

Sources:

"The Global Financial Crisis: Causes, Consequences and Countermeasures," International Monetary Fund

"Impact of the 2008 Global Economic Crisis on the Indian Economy," Indian Council for Research on International Economic Relations