Next Asian Financial Crisis

Asian Financial Crisis in 1997-98 affected Malaysia which was very badly hit. Stock market dropped from 1,385 to 295 points while Ringgit went down to as low as RM4.80 to the dollar. At the height of the crisis, interest rates went up to as high as 18%. The last time the Asian Financial Crisis started in Thailand and this time if it cannot be controlled it will blow from India.

Measures taken by Indian authorities

In an attempt to stamp further outflow of funds, India has recently resorted to some limited capital control such as the following.

> Reducing the amount of money Indian residents can sent out overseas annually from $200,000 to $75,000

> Indian firms can only invest 100% of their net worth down from 400% previously

> Total ban on all importation of Gold coins and Medallions from abroad

However such measures are only temporary in halting further outflow of funds as it is counter-productive and will only slow the economy.

Part of the blame goes to the Multinationals that are allowed to operate in India during the opening of its economy in the 1990s. The Indian government states that instead of contributing to the Indian economy through the transfer of technology and also managerial skills they ended up raping the Indian economy high and dry. And when it is all done they now depart for greener pastures and as a result exacerbated the outflow of funds. India’s economic fundamentals have been deteriorating for the past couple of years. India recorded a trade deficit of INR 733.33 billion in July 2013. For the past 35 years, India’s trade deficit average about INR 120.83 billion. Although India’s Government Debt to GDP decreased from 68.05% to 67.57% but its external debt increased to USD 345 billion in 2012 from USD 305 billion in 2011. With a depreciating Rupee it means India has to pay more Rupees for its external debt which is quoted in dollars.