GLOBAL FINANCIAL CRISIS AND ITS IMPACT ON INDIAN

ECONOMY

KAUSTUBH BARVE 11

MEET BHADRA 13

REWAT BHARSAKLE 15

ADITYA BHIMANAWAR 17

GROUP MEMBERS

INTRODUCTION

KEY EVENTS / CAUSES

IMPACT ON INDIAN ECONOMY

RBI MEASURES TO CONTAIN THE CRISIS

LESSONS LEARNT

CONCLUSION

FLOW OF PRESENTATION

Also known as the US Meltdown - Worst Financial Crisis since the Great Depression of 1930s

According to IMF officials, the losses due to the crisis amounted to $945 billion in USA alone, but may run into trillions of dollars when all the countries are considered together.

The impact of this crisis was so severe that it led to the collapse of top investment firms like Lehman Brothers, Bears Sterns while others such as Citi Group, JP Morgan were rescued by the government and AIG

FINANCIAL CRISIS OF 2008

KEY EVENTS LEADING UP TO THE 2008 FINANCIAL CRISIS

BOOM AND BUST OF HOUSING SECTOR

Between January 2002 and mid-year 2006, housing prices increased by a whopping 87 percent.

The boom had turned to a bust, By the third quarter of 2008, housing prices were approximately 25 percent below their 2006 peak.

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

It increased only slightly during the recessions of 1982, 1990, and 2001

The rate began increasing sharply during the second half of 2006

It reached 5.2 percent during the third quarter of 2008.

INCREASING RATE OF DEFAULT

0%

1%

2%

3%

4%

5%

6%

HIGH RISK LOANS AND LENDING PRACTISES

SPECULATION

CENTRAL BANK POLICIES

GOVERNMENT POLICIES

OTHER CAUSES

IMPACTS OF GLOBAL FINANCIAL CRISIS ON INDIAN

ECONOMY

IMPACT ON STOCK MARKET

OTHER IMPACTS Impacts on Indian trade: 10 billion C.A.D Foreign exchange reserves depleting to 53 billion.

Impact on India’s export: decline 15% in 08. imports grew by $6.1billion to $21.5 billion.

Impact on jewelry,handloom and tourism• 50,000 artisans lost their jobs.

• 4.6% drop in handloom exports. • 8% to 10% dip in tourism.

OTHER IMPACTS

IT-BPO Sector:• 70% of companies started negotoating at lower rates.• 60% cutting back on contracts.• Only 40% increase thier offshore vendors.

Exchange rate depreciation :• 20% depreciation in rupee.• Creating panick in impoters.• Rupee breaching the line of 51 per $.

ROLE OF FII ’S AND FDI

RBI MEASURES TO CONTAIN THE CRISIS

Monetary Measures

Fiscal Stimulus packages of Dec ‘08 and Jan ‘09

 PHASE 1: CRISIS MANAGEMENT

(OCTOBER 2008-APRIL 2009)

Strong rebound in investment demand

Domestic private demand remained dampened

Inflation started increasing due to high liquidity and money supply

Monetary measures withdrawn; SLR, export credit refinance limit, etc., restored to pre-crisis levels.

PHASE 2: RECOVERY MANAGEMENT (MAY 2009-DECEMBER 2009)

Sustained increase in food prices and manufactured goods

CRR raised to contain excess liquidity

Repo and reverse repo rates were increased

Risks from sluggish global economy, rebound in global commodity prices, volatile capital flows and high domestic food prices remain significant.

PHASE 3: INFLATION MANAGEMENT

LESSONS LEARNT FROM THE CRISIS

Monitor Loan Performance carefully and make loans to high quality borrowers

Governance structure of the risk management system needs to be improved

--The Role of Risk Managers……..!

 

Lessons …..

Credit rating agencies themselves need to be re-examined

Global problems require global coordination

Transparency

Lessons …..

CONCLUSION