India, like other developing economies, was hit by the international economic crisis. Real GDP growth slowed in fiscal year 2008-09 (Apr 2008 - Mar 2009) to 6.7%, compared to 9% in the previous year. The slowing was of the same magnitude as that which followed the bursting of the technology bubble at the onset of the decade (chart).

The economic crisis had a major impact on investment and private consumption. India’s financial sector has been rapidly integrating in recent years into the global financial markets. According to the IMF, already 25% of India’s business finance comes from foreign loans and FDI. The drying up of external finance for banks and nonfinancial corporations has had a marked effect on investment during the crisis.