By The Indian economy is progressing itself towards globalization and this trend necessarily highlights an Indian economic landscape. As one of the world’s fastest-growing major economies, from commodity price fluctuations to geopolitical shiftsIndia’s financial health is influenced by various global factors such as international business relations, foreign capital and investment, the geopolitical map of the country and many other variables that come apart.
In recent years, India has emerged to be one of the progressively performing economies globally due to structural reforms and liberalization measures that have allowed for accelerated growth. However, such growth has not arisen in isolation. Such growth is significantly impacted by the global financial environment. For instance, the cost of commodities, the value of other currencies, as well as the changes in the interest rate environment in advanced economies, especially the USA, have significantly affected India greatly.
First and foremost, the fluctuations in international prices of commodities have an indirect income effect on the Indian economy which is largely dependent on imports of necessities such as petroleum, natural gas and metals. These price fluctuations can also influence the rate of inflation or fiscal balances. For example, the increase in heavy crude oil price would raise the freight charges, increase inflationary expectations and stretch consumer budgets. This was noticeable in particular after the geopolitical events that led to twisting of the markets with sharp spikes in prices and forced the Indian state to dispense its one-time provisions of subsidies and change its policies. On the other hand, fall in the prices of commodities would ease the inflationary pressures and create a healthy environment for economic growth and increase consumers and business organizations purchasing power.
In addition to the commodity prices affecting inflation, global financial markets also help determine exchange rates. The Indian currency, the Rupee, can also see large reduction against the dollar or other international currencies whenever a shift in the sentiment of global investors or movement of international capital occurs or there is an alteration in the macroeconomic strategies put in place. Depreciation of the rupee for example increases the price of imported goods and increases the rate of inflation, but makes Indian exports easier to sell in the international market. In this regard, a decrease in the value of the currency may have some positive impacts especially for the region since some sectors in the economy are likely to benefit while others do not. Industries exporting goods may benefit; however, those dependent on imported goods may struggle. However, excessive movements in the foreign exchange rates can discourage foreign investments since the investors are looking for stability that can reduce the risk attributable to variations in the currency.
The Federal Reserve monetary policy plays a vital role in formative global financial trends. This is evident as when the Fed varies the rates; so, do the capital flows. There is an effect whereby when U.S. interest rates increase, there is a capital increase from emerging economies such as India as investors prefer the high rates in the USA. Such increase leaves the local markets unstable whereby stock markets are sold off and currencies are under compression, this was the case as seen in the year 2018 and also during the COVID-19 global outbreak, proving how the Indian economy is swayed by the US policies. The interrelationship that exists between the monetary policies in the United States and emerging markets is the reason why India should have a maintained level of strong buffers able to withstand shocks as a result of changes from across the globe.
Foreign direct investment (FDI) is another critical area in the economy as it is greatly influenced by global financial trends and the forces of globalization that attract multinational companies to invest in India due to its large consumer base and growth prospects. The level of FDI inflow largely depends on the conditions where economic uncertainties or downturns may prompt corporations to adopt risk opposed strategies and decrease their investments, in India. On the other hand, bursts of positivity in the economy frequently lead to increased enthusiasm for investing in India as evidenced following major changes targeting enhancements, in the business environment. Hence India’s appeal to investors relies not on local policies but also considerably on the current state of the global economy.
Trade dynamics should also be considered carefully given the changing geopolitical landscape on shifts in global trade dynamics. The increasing presence of measures and trade tensions on a scale may limit India’s opportunities for exporting goods. Notable is the current trade dispute between the United States and China which has led some businesses to think about moving their supply chains implying a chance for India to strengthen its position as a manufacturing alternative. Nevertheless, India’s capability to take advantage of these changes relies on the implementation of policies, improvements in infrastructure and initiatives, for skill development to bolster its manufacturing capabilities. The government’s “Make in India” campaign showcases the measures the country is embracing to draw in foreign investment, in manufacturing and utilize worldwide economic shifts to boost local development efforts.
The global financial trends also propagate the need for India to more specifically invest in its digitalization and in Financial Technology. With the increase in the trend of the digital economy, the financial service industry in India has adopted concepts including digital financial systems, block chain, and cryptocurrency. The pandemic has solidified the move to contactless transactions, and India has a chance to become the fintech leader in the world. Through the sustainable development of the Digital India Initiatives, India can not only bring about more effective access to non-interest based financial services and products to consumers who are previously unserved, but also be able to attract FDI in technology sectors that drive the country’s economic progress’ and map global developments with India.
Moreover, major issues revolving around climate finance and sustainable investing have arisen in the light of the existing challenges of climate change. The need to diversify to green energy is perhaps more apparent in India than in any other energy consumer country and equally poses new challenges as well as opportunities. Major investors are now focusing on the kind of projects they wish to fund in the global financial system through promotion of ESG criteria. This trend opens opportunities for India to attract green investment if only it would extend supporting its renewable energy infrastructure and environmentalism. Thus, through integration of growth goals with the concept of sustainable development for the world, India can be the receiver of the funds with the technologies required for improving the usage efficiency of limited natural resources, and a contributor towards the battle against climate change.
As evidenced by this India can effectively capture opportunity from the dynamics in the global financial system though it must equally be wary of inherent risks. As the developments keep shaping the world economy, the ability of India to respond to such changes will be decisive in shaping up the path of the country’s development. Thus, preserving a strong macroeconomic environment, increasing the financial sustainability, and promoting the conditions for the development of the inclusive digital economy, India can successfully use the trends to strengthen the role of a country – the driver of the economy of early-stage countries.
