The 541 point, or 4 per cent, crash in the Sensex on Wednesday coincided with P. Chidambaram’s fourth budget under the UPA administration. But that’s just where the coincidences end. The reasons for this fall lie outside the Budget, outside Parliament, outside the Indian economy — they lie in China, Philippines, Brazil, Mexico and, of course, the US.

They have been lying there ever since the tech boom of 2000, when brokers would look at the Nasdaq to gauge the mood of the Sensex — if AOL, Amazon and Cisco rose, Infosys, Wipro and Satyam would follow, taking the Sensex up; and vice versa. Wednesday’s fall illustrates a future that happened seven years ago, when the Indian markets began to understand, theoretically and practically, their integration with world markets.

This process of integration with world markets began in 1993 when FII regulations were drafted. The very next year, riding $4 billion of FII inflows, the Sensex touched its all time high of 4,630 on September 12, 1994, as new money entered the Indian market. Three years later, in 1997, a pleased Chidambaram noted that the cumulative FII inflows stood at $7 billion. The scale has changed in the decade since: last year the additional inflows were over $10 billion.

An evolution of India’s global integration is on, but before we walk the long way ahead towards a seamless merging of capital flows, it would be prudent to pause and look behind, learn from history of crises. Between 1987 and 2000, the world saw three major crises — Black Monday of October 19, 1987, Tequila Crisis of 1994-95, and the Asian Crisis of 1997.

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