Due to globalization, the economies of world are more inter-connected than ever. With increased growth of economic activities around the world, it has impacted India’s GDP in several ways.
How global economic environment affects GDP of India:
Global crisis will severely affect certain sector, which will then have spill over effects there by affecting output, which will in turn affect GDP growth rate. Major sectors which get affected are financial markets, Trade flows, Export & Imports and exchange rates.
Faltering of Industrial growth: With crisis in global economy, the demand for industrial goods decreases for instance during US crisis, Iron ore export declined drastically.
FDI and FII: Federal Hike will impact the FDI and FII inflows in to India, which will lead to slowdown in economic output.
Agriculture: If demand decreases, the price falls and this affects further production. During 2008 recession, due to decreased demand, the agricultural GDP severed negative growth rate of 0.2 percent.
Credit crunch: Economic meltdown will lead to credit crunch there by increasing the cost of loans, which will affect demand and supply.
Employment: The growth rate of employment generation will be affected drastically. 5lakh people lost job in service sector alone during US Subprime crisis.