Recession: Why was India the least affected?

The current financial meltdown started in late 2007 in the US, but it took more than a year to pinch India. Now, one year after the Lehman Brothers collapse, the world is talking about India and China leading the world out of recession.

Leaving out China for the time being, let us focus on India and see why we were one of the least-affected. In fact we hardly had 2-3 quarters of slower growth. We did not have a recession at all! This is primarily because India's GDP is heavily domestic-consumption driven. 64% of what is produced in India is consumed locally. The overly hyped IT industry's contribution to GDP is only 4.5%. We have a negative balance when it comes to exports vs imports. We import more than we export. This works really well when the world outside is bad and the domestic industry is doing well.

The RBI (Reserve Bank of India) also did its job very well by stepping in at appropriate time to prevent the banks from lending too much to sectors like real-estate. We did not have too many financial derivatives either to make things complicated. Having more nationalized banks and financial institutions works in our favour because when the whole world panicked, people in India could run to domestic state-run financial institutions for cover!

Overall, India came out of the recession very quickly because out here, the world was indeed not so flat. Europe got flattened because the world out there was as flat as the US!