The US sub-prime crisis first surfaced around August 2007 (and peaked when Lehman Brothers collapsed in September 2008) but, as ratings agency ICRAs Monetary Research Project Director Mihir Rakshit points out in a recent paper in the Economic & Political Weekly, India's deceleration predates the global meltdown.
Both IIP and quarterly GDP started declining around March 2007, with the decline in the IIP being much faster.
This was preceded by a sharp slowdown in investment levels, especially in the private sector which accounts for 75-80 per cent of all capital formation in the country.
The reason for this, Rakshit points out, was a series of policy gaffes not putting in place a conducive environment for PPP in infrastructure to take off; allowing the rupee to appreciate due to excessive FII inflows which lowered export growth and the impetus this provides to GDP; and the RBI insisting on keeping interest rates high even though it was clear the inflation was commodity-price induced and unlikely to respond to these policies.
Sadly, Rakshit points out, while we may have induced the problem, resolving it will now depend on how the global economy fares.