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IILM GURGAON----------------------
KEYNOTEADDRESS
18 APRIL, 2009
IMPACT OF RECESSION ON INDIAN ECONOMYAND FUTURE TRENDS
PROF. DEEPAK TANDON
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A QUICK LOOK AT FACTS
Worlds largest democracy
Ethnically diverse
26% below poverty line
Struggle for freedom
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Price 200 200!
WP"# $ & ' ( $00 )*eb 0+ 22,-! 2$!-'
.P"# 200$ ( $00 )/an 0+ $'! $'
Bank Rate Percent Effective
i- an1 ate 6-00 2-0'-200
Rati! Percent )w-e-f-+
. 3-00 $,-0$-200
2- S4 2'-00 0!-$$-200!
- epo ate 3-00 0'-0-200
'- everse epo ate -30 0'-0-200
3- .ash 5ep atio 3-,, 2,-02-200
6- "nvestment 5ep atio $-, 2,-02-200
.redit 5ep atio ,$-'2 2,-02-200
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In" a #i $e t%e &r" Lar'e!t ecn()
#it% t%e Fa!te!t rate f *r#t%
5-Ye
arPeriod
Averag
e
Percent
Annum
Pe
INDIA in +,-,
8
7
6
5
4 i
3
2
Brazil
China
India
Russia
1
0
2005-10 2015-20 2025-30 2035-40 2045-50
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DEMO*RAP/IC AD0ANTA*E
7oungest Population in the World#8ore than half of "ndias population is below 23 yrs age6
6
9ver the ne:t 3 years; "ndia alone will account for more than $
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RECESSION
> recession is a decline in a countryAs gross domestic product )?5P+ growth for two or more consecutive Buarters of a year- > recession is also preceded by several Buartersof
slowing down-- "t is the contraction phase of a usiness cycleT%e I(1act! in In"ia are2
$- educed liBuidity in the "ndian economy
2- educed industrial output
- educed Cob opportunities
'- Stoc1 8ar1et is lingering in the bottom
3- eal estate mar1et has started to ta1e a beating
6- "nflation has increased
,- ?5P has come down and the ?P5 forecast for the ne:t two Buarters are only
averaging down
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CAUSES OF RECESSION
3. CURRENCY CRISIS
2-
&. INFLATION
'-
-. NATIONAL 4 *O0ERNMENT DEBT
6-
5. SPECULATION
!-
6. 7AR
$-
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EFFECTS OF RECESSION
3. BANKRUPTCIES
2-
&. DEFLATION
'-
-. FORECLOSURES
6-
5. REDUCED SALES
!-
6. STOCK MARKET CRAS/
$0-
33. UNEMPLOYMENT
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efore; understanding Decession; we need to understand
the mar1et economyF
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A8 T7O STA*ES OF MARKET ECONOMY
t
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r# n' ar etEcn()
Starting Point ( Willingness tobuy
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Decinin' Market Ecn()
Starting Point ( Gnwillingness to
buy
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B8 T7O FACTORS OF MARKET9 : DEMAND ; SUPPLY
Pr"
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/O7 TO COME OUT OF RECESSION=
"mportant Point#@oday; it is a mar1etEconomy
P r odu c e r s F.an produce andsell at their prices
. o n s u me r s F.an decide tobuy or notF
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*iscal Policies)y ?ovt-+
8onetaryPolicies
)y "+
?overnment influences theeconomy by changing how
it )?overnment+ spendsand collects money
" manipulates theavailable supply of
money in the country
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89IE@>7 P94".7 =9/E.@"JES
T7IN OB>ECTI0ES
maintaining price stability
ensuring availability of adequate credit to productive
sectors of the economy to support growth
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MONETARY POLICY: BASIC THRUST
En! inve!t(ent "e(an" in t%e ecn()
T re!1n" !#ift) t evvin' '$a "eve1(ent!.
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8onetaryPolicy & "nstruments
Direct Instruments Indirect Instruments
6OpenMarket Operations:Reserve
Bank controls money supply by buying
and selling government securities, or
other instruments
6MarketStabilisation
Scheme (MSS)
Government of India dated
securities/Treasury Bills are
being issued to absorb
enduring surplus liquidity.
6LiquidityAdjustmentFacility
(LAF)
6Repo uctions and
6Reverse Repo uctions,
6CashResere Ratio (CRR)
!inimum amount that
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commercialLAF has emer!ed as the tool "or both liquiditbyanmkas
nmau!stekmeenatsacnasdh arelseorvaes a
si!nalin! deise "or interest rate in theoerni!ht market#
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cnc
K"n *eb=0; "ndiaAs e:ports declined by 2$-,% )y=o=y+; while imports declined at a faster
pace of 2-% )y=o=y+; resulting in shrin1ing of trade deficit to GSL '- bn-
K@he current account deficit amounted to GSL $'-6 bn during H *70; the highest
Buarterly deficit since $0-
K@he capital account balance turned negative during H *70 for the first time since H$
*7-
K"ndiaAs total e:ternal debt stoc1 increased by 2-!% to GSL 20- bn at the end of 5ec=
0! over end Sep=0!-
K@he ratio of foreign e:change reserves to total e:ternal debt as at end 5ec=0! stands at
$$0- %-
K"ndiaAs real effective e:change rate )EE+ remains undervalued at '-0 )as on $=*eb=0+-
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FINANCIAL YEAR +,,6
INFLATION 2
9ne of the biggest concerns for the "ndian Economy !ee(! t %ave $een tacke"; certainly in the medium term- @he infatin for the wee1=ended 8arch 20; 200 came in as 5.5-- @he Prime 8inister must be than1ing his stars or his calculations; and if the current trend continues ; and it should; by the time the 200 4o1 Sabha elections campaigning starts; inflation would no longer
be an issue and many middle class families might actually be than1ing the government-
@hough the e?1rt! have declined from L$-,' billion in September to 33.- $iin in Nve($er+,,; the i(1rt! "ecine" fr( +.& $iin t +3.-5 $iin in the corresponding period;
mainly on the account of the fall in crude prices- @he crude bill has dropped from around L billionto L,-23 billion in Iovember 200!-
>s a result the Tra"e Deficit %a! narr#e" t 3,.,5 $iin in Iovember compared with L$0-3'billion in 9ctober and L$0-63 billion in September 200!- @he total trade deficit for the period A1ri:Nve($er +,, !t" at .& $iin
"n short; though recession has hit our e:ports; the fall in the import bill more than ma1es up for the effectof the recession- Even in the recession; the e?1rt! in the ei'%t (nt%! en"e"Iov- 0 rose $-'
percent from a year earlier to 336.& $iin- .ertainly not bad by any stretch of imaginationconsidering the global recession-
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FINANCIAL YEAR +,,6
@he total i(1rt $i for the >pril=Iovember 200! period stood at +,&. $iin of which 9il imports
were valued at L,'-$$' billion- .onsidering that crude trade well over L$00
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In"ian tra"e !cenari
Marc% +,,6 nt affect a! *reat a! *$a Deve1e" Cmerica and South=east >sia remains MBuite highM; but it needs
to pic1 up in G-S- and Europe; which consume about 3 percent of "ndian e:ports
?rowth of less than , percent - Nigh borrowing costs and followed by the global crisis slowed >siaAs third
largest economy last year; and analysts forecast less than 6 percent e:pansion in the current year to
8arch 20$0-
.ontraction in demand at home and abroad has cut "ndiaAs factory output and e:ports sharply since
9ctober-
"ndiaAs industrial output contracted $-2 percent in *ebruary from a year earlier and e:ports were down
more than a fifth-
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CAUSES
3. SUB PRIME LENDIN* CRISIS
2-
-
. TI*/TENIN* OF LIQUIDITY
3-
6-
5. RISIN* OIL PRICES!-
-
3,. CAPITAL FLI*/T IN EMER*IN* MARKETS
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EFFECTS
3. DIFFICULTY IN BORRO7IN*
2-
-
'-
-. UNEMPLOYMENT
6-
,-!-
6. FAILIN* PROFITABILITY
$0-
$$-
$2-
3&. FALLIN* STOCK MARKET$'-
$3-
$6-
35. DECLINE IN CUSTOMER CONFIDENCE
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"ndia in the emergingorder = aim
BPLR which is at $,-23% to be 3+
L#erin' of the domestic intere!t rate! to ma1e retail ban1ing more attractive
S#a11in' of the local currency with respect to the foreign currency
E. norms liberaliOed to inf
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8ulti faceted growth in 33t% five )ear 1an-
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Ke)cnce1t! an" "eve.1(ent!
3. >I >@E
$-
+. .$-
&. S4$-
. EP9 >@E$-2-
-. EJESE EP9 >@E
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STATE OF 7ORLD
World economy e:pected to slow down from 3% in 0, and -,% in 0! to Cust 0-3% in 0
@he world economy is in Qprecarious territory = 9utput in advanced economies will contract in200
> deep financial crisis and volatile commodityprices have led to fast deteriorating global growth
WorldEconomic
Outlook,
January28, 2009
nternational!onetary"und
#
5
$
%
2
&
0
'0% '0$ '05 '0# '0( '08 '09
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STATE OF 7ORLD ECONOMY2 SCENE
*DP *r#t% Rate! $) Ca1an 3.6 +. +.3 3. 3.-
R
CIS . 3,.3 6. 5. 5.,
C%ina 3,. 33.3 33. 6.& 6.-
ASEAN J I!*+!e), M&"), %eP)&)(()!e ' T)&!*G -.3 -.5 .& -. .,
"ndia 6., 6.5 6.+ 5.6 .,
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*DP *r#t% Rate! $) Ca1an 3.6 +. +.3 ,.5 ,.-
R
CIS . .+ . 5.+ -.5
C%ina 3,. 33. 33.6 6.5 6.&
ASEAN J I!*+!e), M&"), %e
P)&)(()!e ' T)&!*G
-.3 -.5 .& -.- .6
"ndia 6., 6. 6.& 5.6 .6
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*DP *r#t% Rate! $) Ca1an 3.6 +. +.3 ,.- :,.+
R
CIS . .+ . .6 &.+
C%ina 3,. 33. 33.6 6.5 .-
ASEAN J I!*+!e), M&"), %e
P)&)(()!e ' T)&!*G
-.3 -.5 .& -. .+
"ndia 9)0 9)8 9)% ()8 #)%
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*DP *r#t% Rate! $) Ca1an 3.6 +. +.3 ,.- :+.
R
CIS . .+ . .6 : ,.
C%ina 3,. 33. 33.6 6.5 .5
ASEAN J I!*+!e), M&"), %e
P)&)(()!e ' T)&!*G
-.3 -.5 .& -. +.5
"ndia 6., 6. 6.& 5. -.3
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SUR0I0AL
3. RE E0ALUATE YOUR ENTIRE PRICIN* STRUCTURE
2-
&. T/INK STRATE*ICALLY
'-
-. *O BAR*AIN /UNTIN*
6-
5. CONSIDER STRATE*IC IN0ESTMENTS
!-
6. MONITOR YOUR CAS/ FLO7S
$0-
33. EN*A*E YOUR EMPLOYEES IN T/E PROCESS
$2-
3&. TALK TO YOUR BANK IN0ESTORS AND OT/ER SOURCES OF CAPITAL
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ADAPT TO RECESSION
3. PRO>ECT CAS/ FLO7 IN AD0ANCE AND MONITOR BUD*ET
2-
&. PRESSURISE DEBTORS TO PAY UP
'-
-. RE0IE7 O0ER/EADS AND IMPRO0E COST EFFICIENCY
6-
5. REDUCE STOCK LE0ELS
!-
6. KEEP UP TO DATE 7IT/ LATEST FINANCIAL INFORMATION
$0-
33. A**RESI0ELY SEEK NE7 BUSINESSES
$2-
3&. BE OPEN TO NE7 IDEAS AND ACCEPT
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S7OT ANALYSIS
3. A0OID TAKIN* BAD BUSINESS
2-
&. SUR0I0AL IS MORE IMPORTANT T/AN SIE
'-
-. OPERATE IN .LEAN AND MEAN/ MODE
6-
5. LOOK FOR TALENTED UNEMPLOYED PEOPLE
!-
6. MARKETIN* ASSUMES FURT/ER IMPORTANCE
$0-
33. A**RESI0ELY PURSUE DEBTORS FOR PAYMENTS
$2-
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REMEDIAL MEASURES
Mnt%) freca!t! fr 7PI CPI IIP *r#t% Bank Cre"it 3-:63 "a):T:Bi! )ie" 3, )ear
*:!ec )ie" an" E?c%an'e rate
S(e ear) !i'n! f !ta$iit) e(er'e in t%e ecn()
T%e 7PI infatin e?1ecte" t t
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.Things will change with hard work & time ...But there will be pain initially.
TH!" #$%