global economic meltdown and its impact on india-final

7/31/2019 Global Economic Meltdown and Its Impact on India-final

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GLOBAL ECONOMIC MELTDOWNAND ITS IMPACT ON INDIA

By

Vinayak Srinivasan

Suraj Shetty


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INTRODUCTION

In the era of globalization financial crisis seems tohave been occurring with greater frequency.

The crises of Latin America in the early 1980sand Mexico, Asia and Russia in the 1990s werethe four major crises.

Financial crisis started to show its effects in themiddle of 2007.

The crisis has become one of the most radicalreshaping of the global banking sector.


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THEGLOBALFINANCIALCRISISOF 2008-09

Emerged in September 2008 with the failure,merger of several large United States basedfinancial firms.

It spread with the insolvency of additional

companies, governments in Europe, recession anddeclining stock market prices around the globe.

Around the world, stock markets have fallen, largefinancial institutions have collapsed or been boughtout and governments in even the wealthiest nationshave had to come up with rescue packages to bailout their financial systems.


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The crisis has become one of the most radicalreshaping of the global banking sector.

Many Industrialized nations were sliding intorecession.

Bush administrations offered a $700 billion

bailout plan for the US financial system

Bailout package is based on trickle downeconomics-Joseph Stiglitz

Market liberalization and privatization in thecommodity sector have also not resulted in greaterstability of international commodity prices.


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IMPACT

The Indian economy has shown negative impact

of the recent global financial meltdown.TRENDS IN GDP AT FACTOR COST

YEAR GDP(at 1999-00) Growth in %

1999-2000 1792292 -

2000-01 1864773 4.4

2001-02 1972606 5.8

2002-03 2048287 3.8

2003-04 2222758 8.5

2004-05 2388384 7.52005-06 2612847 9.4

2006-07 2871120 9.9

2007-08 3129717 9.0

2008-09 3351653 7.1


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This declining trend has affected the industrial

activity.

A financial crisis can cause workers earnings to

fall as jobs are lost in formal sector.


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Industrial growth is faltering.

Indias industrial sector has suffered from the

depressed demand conditions in its export markets.

Overall growth in April-November 2008 was

estimated at 3.9% compared to the growth of 9.2% in

April-November 2007.

Warning signals and signs of fragility in Indian

Finance.


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Immediate effect of that crisis on India has been an outflow

of foreign institutional investment from the equity market.

NET INVESTMENT OF FIIs AT MONTHLY

EXCHANGE RATE(IN US $ MILLION)

YEAR Amount

1999-2000 2339

2000-01 2160

2001-02 1846

2002-03 562

2003-04 9949

2004-05 10272

2005-06 9332

2006-07 6707

2007-08 16040

2008-09 -8857


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Daily movements of BSE Sensex in 2008-09


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Between April 2008 and November 2008, RBI

reference rate for the rupee fell by nearly 25%.

FOREIGN EXCHANGE RATE

Month Rupees per unit of

Dollar

Appreciation/Depr

eciation

March 2008 40.36 -

April 2008 40.02 +0.85

May 2008 42.13 -4.2

June 2008 42.82 -5.74

July 2008 42.84 -5.79

Aug 2008 42.91 -5.95Sept 2008 45.56 -11.42

Oct 2008 48.66 -17.05

Nov 2008 49.00 -17.64

Dec 2008 48.63 -17.01


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RATE OF INFLATION (WPI) IN INDIA

Rate of inflation has gone down to 8.98% in the lastweek of November 2008 from the peak of 12.9% in

the first week of August.


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FOREIGN EXCHANGE RESERVES(IN US $

MILLION)

2005-06 2006-07 2007-08 2008-09

Foreign

Exchange

Reserves

151622 199179 309161 247621


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INDIAS FOREIGN TRADE IN US $ MILLION

The other direct impact of global financial crisis has

occurred in the area of credit availability to small-

scale agriculture and other rural livelihoods.

The impact of the crisis on the rural sector, originated

from the slowdown experienced by secondary and

tertiary sectors.

2005-06 2006-07 2007-08 2008-09

Export 103091 126414 155512 131990Import 149166 185735 235911 225809

Balanceof Trade

-46075 -59321 -80398 -93819


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How the Government and RBI responded

The Government of India and the RBI responded to

the challenge strongly through its fiscal and

monetary policies.

The Government has introduced three fiscal stimulus

packages.

The RBI has been effectively able to manage

domestic liquidity and monetary conditions.

Range of instruments available for liquidity

management with the Reserve Bank.


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Money market liquidity is also impacted by our

operation in foreign exchange market.

The existing set of monetary instruments hasprovided adequate flexibility to manage evolving

situation.

So financial sector has emerged without much

damage.


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Conclusion and Suggestions:

India has been hit by the global meltdown, it isclearly due to Indias rapid and growing integrationinto the global economy

To prevent the global meltdown requires an effective departurefrom the dominant economic philosophy of the neo-liberalism.

The first departure should be a return to Food-First doctrine.

The other important initiative that needs to be adopted is thebuilding of institutions.

Institutions like cooperative markets and credit cooperativescan go a long way in addressing the lack of economicallyviable producer prices and loaning credit availability.

This generates larger cost for the economy.


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Injection of demand can occur only through direct

fiscal action by Government.

New growth will have to come from enlarged

government expenditure.

Larger government spending towards agriculture andrural sector can remove both recession and food

crisis in India.

global economic meltdown and its impact on india-final

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