The collapse of the mighty global financial system has triggered a series of chain reactions in India, but the impact is not going to be as widespread as earlier imagined. The reasons are numerous.

First, the subsidiaries of collapsed investment banks like Lehman are being bailed out by entities like Nomura of Japan. This includes the 2,500-strong back office operations in Mumbai, apart from the smaller securities set up. Similarly, American Insurance Group (AIG) in India has a tie-up with the ever reliable Tatas who have given a thumbs up to all consumers who were worried about their insurance carried out through this vehicle.

Second, and even more significant, is the fact that the conservative approach to reforms in the financial services sector has ensured that the tremors of earthquakes in the US are being felt minimally in India.

A meeting a few days ago of the regulators for the pension, insurance and other similar sectors concluded with a sigh of relief and pronouncement that slow and steady opening up of the economy has helped in the long run. This is not to say that capital account convertibility - or making the rupee freely tradable - will not take place. But probably as the regulators have pointed out, this can happen when the economy is at a more mature stage.

Ultimately, therefore, the big losers in the global financial crisis in this country are likely to be the iconic software firms like Infosys, Wipro and Tata Consultancy Services (TCS). Much of their business comes from the erstwhile giant investment banks and that could affect their profitability in the short term. In the medium-to-long term, however, these companies are likely to have greater resilience given their innovative approach in the past to hunting out new markets and customers.

The other area where worries still remain is the pullout of funds by foreign institutional investors from the country's equities and debt markets. The bourses have been showing considerable volatility ever since the news came in about the failure of Lehman and the domino-like effect on other investment banks.

While the Indian stock markets became volatile, they have not crashed as might have been expected initially. They now seem to be stabilizing as safety nets are being created for collapsed banks, like converting Goldman Sachs and JP Morgan into commercial banks while other banks are picking up some entities cheap like the takeover of Wachovia by Wells Fargo.

As far as the US and even Europe are concerned, the ramifications appear to be unending as the scenario is unfolding into the biggest banking crisis in 100 years. Financial institutions considered to have a rock-like stability including Merrill Lynch, Morgan Stanley, JP Morgan and the Lehman Brothers collapsed within days of each.

Some were rescued through various manoeuvres and only Lehman actually declared bankruptcy. Reports reaching here also indicate that many smaller banks are declaring insolvency in the US - a development not being taken note of by the international media which is focusing on the big fish. Thus average people in the US are facing severe hardship. No wonder then the battle is being described as one of Main Street vs Wall Street.

The complex set of circumstances that created the crisis are a fascinating story of greed and over-reach at the highest level of the financial system in the US. The solutions being found are even more fascinating - at least in India. The US administration actually bailed out mortgage giants like Freddie Mac, Fannie Mae and the world's biggest insurance company, AIG. The bailout has resulted in the government taking a majority stake in these institutions including an 80 percent equity share in AIG. In other words, the US is doing what we in India call nationalisation.

The irony has not been lost on those in the banking industry in this country. Former prime minister Indira Gandhi was roundly condemned by the US and other Western powers when she nationalised banks in this country in order to ensure that credit reached the poor and powerless. Deemed to be a socialist - or communist-like measure -, it has now been adopted without any qualms by the avowed world leader of free market economies. It seems the US government had little choice, as otherwise widespread mayhem may have resulted for the average citizen both within America and abroad.

In the case of AIG especially, it was recognized that the sudden collapse of the largest insurer in the world would wreak havoc globally. Besides the timing of these events could not have been worse for the Bush administration as the presidential elections are just weeks away. It thus had little option but to carry out damage control as rapidly as possible.

Clearly the rules of the game change for Western economies during crisis. Nationalisation can be resorted to when the American people need to be protected but the same measure can be decried when a developing economy needs to do so to similarly protect its far more impoverished citizenry.

The nationalization of banks in India opened the way for ordinary people to use the financial system for small and tiny deposits. It paved the way for what is known as compulsory priority sector lending. In other words, banks had to provide a certain amount of credit for agriculture and rural areas. In the normal course, commercial banks only lend to sectors providing assured and fairly high returns. But Indian nationalised banks have a social obligation to fulfil and the directive to do so was made possible only by the drastic takeovers effected by Indira Gandhi in 1969.

Apart from banks, many other industries had to be nationalized to prevent millions of workers from becoming jobless. The perennially loss-making National Textile Corp is one such case when the government had to step in as private mill owners were closing shop and leaving their workers in the lurch. Though the corporation and its regional subsidiaries have rarely made profits, the mills under its charge have also performed a social obligation by producing cheap cloth meant for weaker sections of society. No doubt the nationalization process was carried too far, but at the time it seemed the only way out to save jobs in a country without any social safety nets for the jobless.

So there can be few tears shed in India for the plight of the US economy. Our focus should only be on how to deal with the fallout of the financial disaster that has overtaken the global bastion of free markets.

(Sushma Ramachandran is an economic and corporate analyst. She can be reached at sushma.ramachandran@gmail.com)