Domestic savings rate had increased from 23.5 per cent of GDP in 2001-02 to 37.7 per cent in 2007-08, which facilitated the step up in investment rate from 22.8 per cent to 39.1 per cent during the corresponding period. Because of the Fiscal Responsibility and Budget Management (FRBM) Act, the fiscal position was also on a healthy consolidation path.
Given the sound macro-financial conditions, India was better placed than many EMEs to face the global crisis, even though over time it became evident that the perception of decoupling was a myth. The impact of the global crisis on India Three channels of contagion – namely trade, capital flows and deteriorating confidence – affected the real sector of the economy.