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WHAT IS GLOBAL FINANCIAL CRISIS ?
GLOBAL FINANCIAL CRISIS :- a worldwide financial fia$co, is an economic recession or depression caused by lack of necessary liquidity in financial institutions.
The global financial crisis of 2008 is the most severe financial crisis that the world has ever faced since the Great Depression of 1930s.The ‘Financial Crisis of 2008’,also called the US Meltdown has its origin in the US housing sector back in 2001-02,but gradually extended over a period of time and eventually brought the entire world under its grip.The financial crisis is characterized by contracted liquidity in the global credit and housing market triggered by the failure of mortgage companies, investment banks and government Institutions which had heavily invested in subprime loans.
INTRODUCTION
Low rate of
interest
Property bubble
Deterioration of financial standards and bad regulation
Financial innovation and lack of
transparency
Burst of property bubble
Problem in fulfilling subprime
mortgage obligations
Loss of financial
and investors
Reassessing risks and risk taking
Increase in counter party
risk , losses
Financing possibilities
have narrowed
Cost of financing has
increased
Impact on financial
markets and economy
Tightening credit
condition
Excessive financing Spreading risk
*** The Global Financial Crisis has not left the “ INDIA” unscathed………***
“FOUR MAJOR FACTORS WHICH AFFECT THE INDIAN ECONOMY WHOLE”1. Availability of global liquidity2. Decreased consumer demand affecting exports3. The financial crisis and Indian IT Industry4. The financial crisis and the India’s
Financial Market
India
GLOBAL LIQUIDITY CRUNCH AND THE INDIAN ECONOMYThe problem of global banks mainly aroused due to •subprime mortgage lending and investments in complex CDO whose values were sharply eroded.•Confidence related issues also affected banks accross globe due to freeze in inter bank lending.The reasons for tight liquidity conditions in Indian markets during early stages of crisis were different from the above.They are Large selling
by foreign institutional investors(FII)
Subsequent interventions by RBI in foreign currency market ,continuing growth in advances
Earlier increases in cash reserve ratio(CRR )to contain inflation
Impact on Export of India
year-over-year decline in exports 15% in October 2008
Indian shipment decline 33.3% ( biggest decline since last 14 years)
Goods export dropped 33% from earlier year to $11.5 in April 2009 (biggest fall since April 1995)
EXPORTShipments of Indian natural pearls, precious
and semi precious stones &
pharmaceutical product dropped by 22.63%
trade between USA and India decline by 23.47% (in 1st Q of
2009)
Indian gems and jewellery sector also
decline
Textiles and clothing export dropped by
14.09% in 20008-09 FY
Declination in Indian export to
USA (in 1st Q of 2009)
Impact on Stock market
Foreign investors have pulled out from stock markets leading to losses in stock and mutual funds.
Because of such uncertainty Many people started saving money in banks rather than investment
More people sold the shares in the Indian market than they bought during this period . This resulted the fall of sensex to lower points.
Table : Sensex & Foreign Investments Year Total Foreign
Investment BSE Sensex (Base : 1978-79 =100)
1999-00 22450 4658.63
2000-01 31015 4269.69
2001-02 38874 3331.95
2002-03 29105 3206.29
2003-04 72139 4492.19
2004-05 69042 5740.99
2005-06 94981 8278.55
2006-07 135080 12277.33
2007-08 249921 16568.89
2008-09 110123 12365.55
2009-10 332575 15585.21
2010-11 281897 18605.18
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11 050000
100000150000200000250000300000350000400000
Graph:- Sensex and total foreign investment relation
Total Foreign Investment BSE Sensex (Base : 1978-79 =100)
2009
2008
2007
Lowering of Growth rate of
indian economy
9%
8.4%
Year GDP- Growth rate (%)
1999 5.5
2000 6
2001 4.4
2002 4.3
2003 8.3
2004 6.2
2005 8.4
2006 9.2
2007 9
2008 8.4
2009 7.4
2010 10.4
India’s IT export growth slowed
down
Companies started cutting costs which
lead to discontinuation of
bonuses, perks ,lavish
parties and other benefits.
The key challenges faced by the
industry were inflation and the
psychological impact of the US
crisis, leading the companies to hit
panic button.
IMPACT ON INDIAN IT SECTOR
1. •)Approximately 61% of the Indian IT sector’s revenues were from US clients.
2. • If the top five India players who accounted for 46% of the IT industry’s revenues are considered, the revenue contribution from US clients was approximately 58%.
3. •Approximately 30% of the industry revenue was estimated from financial services.
4. •IT sector contributed 5.5% towards India’s total exports.
The factors responsible for slow down of India’s IT export growth
Unemployment
year Unemployment %
2002 8.8
2003 8.8
2004 9.5
2005 9.2
2006 8.9
2007 7.8
2008 7.2
More than 500,000 jobs were lost during the last 3 months of 2008 in export oriented sector including gems and jewellery
many workers lost jobs in diamond jewellery , textiles and leather industry the crisis had affected the RS 3000 crores handloom industry and volume of handloom exports dropped by 4.6% in 2007-08 creating widespread unemployment in this sector companies in IT industry have stopped hiring and projected lower manpower need
Job lost
The impact of global financial crisis on some important macroeconomic variables
Decline in the stock market
indices
Fall in the external values of
rupee, especially
vis-a-vis the dollar
Decline in the foreign exchange reserves held by
the reserve bank of India
POSITIVE IMPACTS ON INDIAN ECONOMY
Expose of weaknesses in the economy
Cost stabilization in real estate market
Rationalization of salary structure in IT Industry
Performance appraisal is gaining ground
Austerity is targeted path
Best place for outforcing
Opportunities for international trade
www.indianmba.com www.economywatch.comwww.google.co.in.imghp www.slideshare.netOrfonline.org www.indiapress.com www.independent.org rbi.org.in www.economictimes.comwww.timesofindia.com
Reference