COMMENTARY COVERSHEET
Economics Commentary Number: HL Number 2
Title of Extract: India central bank cuts key interest rates
Source of Extract: The International Herald Tribune
Date of Extract: 07/12/2008
Word Count :
Date the Commentary was written: 19/05/2009
Section of the Syllabus to which this commentary relates: Sections 3.3
Candidate Name: Abhishek Puri
The impact of the global financial crisis on India has been export centric. As a consequence of the crisis, steeply diminishing export growth has resulted in low business confidence and a decrease in industrial production naturally, has been observed. As a result, India’s economic growth decreased from roughly 9.0% to 5.3%. One must establish that Fiscal Policy is the set of a government’s policies relating to its spending and taxation rates. Fiscal Policy is generally the preferred means to stimulate the economy as money is directly injected into the money supply of the economy. However, the Indian government doesn’t have the capability to base the country’s economic revival on fiscal policy due to large fiscal deficits. India has chosen to primarily use monetary policy, which is most effective in controlling an expansion rather than encouraging it. This is because the central bank can effectively force banks to cut lending but can’t make banks lend out excess reserves or investors to borrow more money in recessions.
