Final Economics Presentation

8/3/2019 Final Economics Presentation

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Presented By:Group – 2, Section – E

Anivesh (PGP27270) Anuj Jain (PGP27272) Anurag Singh (PGP27274)

Ashish Sethi (PGP27276) Ashwini Saini (PGP27278) Azhar (PGP27280)



Genesis - Credit crunch

Irrational and unsustainableconsumption in the west

Greed of the investment bankers

Failure of regulating Agencies

Fallacious Rating by Rating Agencies



US Banks gave high risk loans to people with poor credithistories

Loans, Bonds or assets were bundled into portfolios orCollateralized Debt Obligations (CDOs) and sold to investorsacross the globe



Investors suffered losses and hence became reluctant to takeon more CDOs

Credit markets froze and banks became reluctant to lend toeach other



US Home Prices fall 14% in first quarter

Rate of unemployment in the UnitedStates skyrocketed to 8.9% with the lossof a total of 539,000 jobs

US GDP shrunk by 8.1% in the firstquarter

UK : 5000 business registered forbankruptcy in Q1

IMF : Economic crises cost around$ 4 trillion

Germany sees GDP plunge 3.8%, worstdrop in 40 years



•

Balance Of Payments:Current Account: Balance of trade + Netfactor income + Net Transfer Payments

Capital Account: A surplus means money isflowing into the country• India’s balance of payments in 2008 -09

captured the spread of the global crisis toIndia



• Before the financial crisis excessive capital

inflows, increased from 3.1% of GDP in05-06 to 9.3% in 2007-08

• Rupee appreciated from Rs. 46.54 per $ inAug 06 to Rs.39.37 in Jan 08

• Around Jan 08, rupee began a slow declinedue to outflow of foreign investments



• Rising oil and commodity prices: Inflation peaked at12.8% in Aug 08 from 3.1% in Oct07

• Contractionary monetary policy during first half of yeardirected at containing price rise

• RR increased from 7.75% at the beginning of April 08 to9.0% in Aug 08

• CRR was increased from 7.50% at the beginning of April08 to 9.0% in Aug 08



• Liquidity enhancing measures increased fiscal deficit from2.7% in 07-08 to 6.2% in 08-09

• Achieved growth rate of 6.7% in 08-09• Switch to expansionary monetary policy to prevent liquidity

crunch• RR reduced from 9% in Aug 08 to 5% beginning Mar 09• CRR was lowered from 9% to 5.0% from Jan 09



India’s household and corporate savingfuelled the domestic economy at thetime when the global liquidity crunchwas aggravating the economicdownturn in other parts of the globe

Gross domestic savings rate has risensteadily from an average of 23% to anestimated high of 35% in the 2006/07fiscal year (April-March)

Ratios of Gross National Savingsto GDP also increased during that

period



a

Shipments of Indian natural pearls, precious

and semi-precious stones,and pharmaceutical products, allrecorded a decline causing Indian

Exports to the US to drop by 22.63%To $5.22 billion in Q1 of 2009

“ Asia suffered from 2 recessions : a domestic one as well as the external one “



• 61% of the Indian IT’s sector revenue came

from US• 30% of the industry revenue came from

financial services

Slowing economy resulted in – 70 % of the firms negotiated lower rates

with their contractors – Estimated 30000 jobs lost – Revenue guidance downgrade for major

corporatesFactors offsetting the impact• Favorable dollar rupee exchange rate• Growth de-risking through Europe• Growth seeked in non-financial markets



• Decline in foreign exchangereserves held by the ReserveBank of India

• Fall in the external value of the rupee, especially vis-à-vis the US dollar

• Sharp decline in sensexfrom peak levels

Rupee per US dollar

BSE movement during the recession



• FDI has been more stable with relatively

moderate fluctuations• Portfolio investment has been extremely

volatile and largely negative

Direct Investment , Portfolio Investment &Total foreign investment from the period

april 2007 to june 2009

•

Indian stock market is still relativelyshallow, and FII activities play adisproportionately sharp role indetermining the market sentiments

Foreign investment and change inreserves

• Shows the pattern in aggregate net foreigninvestment and change in reserves sinceApril 2007. Once again, the two movetogether



• In India Government & RBI worked in close co ordination

to manage:-Domestic liquidity positionForeign Exchange reservesPolicy framework to arrest growth moderation

• Governments supported financial marketsUS pledged 700 Billion to provide bailoutsChina pledged 585 Billion dollars to public investment

• Regulatory Mechanism in Indian markets saved us fromdisaster

Final Economics Presentation

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