Global Financial Crisis Final

8/9/2019 Global Financial Crisis Final

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GLOBAL FINANCIAL CRISIS

&

RECOVERY PLAN FOR INDIA


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What is Financial Crisis?

The term financial crisis is applied broadly to

a variety of situations in which some financial

institutions or assets suddenly lose alarge part of their value.


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A short list of some major financial crises since 20th century

1910 Shanghai rubber stock market crisis

1930s The Great Depression the largest and most

important economic depression in the 20th century 1973 1973 oil crisis oil prices soared, causing the 1973

1974 stock market crash

1980s Latin American debt crisis beginning in Mexico

1987 Black Monday (1987) the largest one-day percentagedecline in stock market history


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1989-91 United States Savings & Loan crisis

1990s Japanese asset price bubble collapsed

1992-93 Black Wednesday speculative attacks on currencies in

the European Exchange Rate Mechanism

1994-95 1994 economic crisis in Mexico speculative attack and default

on Mexican debt

1997-98 1997 Asian Financial Crisis devaluations and banking crises

across Asia

2001 - dot-com bubble - speculations concerning internet company's

crashed

2007-09 The financial crisis of 20072009 created the late 2000s

recession


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Countries in economic recession..

Estonia

Latvia

Ireland

New Zealand

Japan

Hong Kong

Singapore

Italy

Russia

Germany


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First Quarter 2008:Denmark went into recession

Second Quarter 2008:Estonia

Latvia

Ireland

New Zealand

Third Quarter 2008:Japan

Sweden

Hong Kong

Singapore

Italy

Turkey

Germany

Fourth Quarter of 2008:United States

Switzerland

Spain

Taiwan


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Crisis became International


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Causes of Financial Crisis

Subprime mortgage crisis.

Bubble

High Oil Prices.

Inflation, the silent killer.

Liquidity crisis.


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Subprime

Subprime could be referred to a security for

which a return above the prime rate is

adhered..


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Structure of a BubbleDisplacement (diffusion of new technology starts)

Take off(stock prices show abnormal increase)

Exuberance(stock prices grow at very high rate)

Critical Stage(stock price growth slows down)

Crash(stock prices start tumbling)


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Historic Bubbles

Dutch Tulip Mania (1630s)

South Sea Bubble (1710s)

British Railway Bubble (1840s)

US Railway Bubble (1880s)

Roaring Twenties (1920s)

Multi Bubble (1960s)

Internet Bubble (1990s)

Housing Bubble(2000s)


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Impact of U.S Recession in India

Indian industry recorded negative growth.

-falling to .4% against 12.2% a year ago.

Around 12% dip in Indias Export. Intermediate goods(producer goods)

contracted to 3.7% from growth of 13.9%.

Consumer goods contracted to 2.3% fromgrowth of 13.7%.

-Consumer durables shrank by 3%.

-Consumer non durables shrank by 2%.


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U.S Trade With India

Month Export(million US$) Import(million US$) Balance(millionUS$)

January,2008 1078.4 2,306.7 -1,228.3

February,2008 1,505.5 2,118.5 -613.0

March,2008 1,644.7 2,254.7 -610.0

April,2008 1,105.3 2,125.8 -1,020.4

May,2008 1,493.5 2,190.3 -696.6

June,2008 2,047.3 1,869.2 178.1

July,2008 1,986.6 2,069.7 -83.1

August,2008 1,864.4 2,210.6 -346.2

Source:Press Search


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TOP TEN COUNTRIES WITH WHICH

U.S. HAS A TRADE DEFICIT

Country Name

China

JapanCanada

Mexico

Saudi Arabia

Germany

Ireland

VenezuelaNigeria

Italy

Deficit in Millions($U.S)

Year (2006)

-27,956.65

-6,046.85-5,956.50

-4,804.47

-4,069.64

-3,368.14

-2,795.35

-2,660.30-2,631.80

-1,756.64

Deficit in Millions($U.S)

Year(2008)

-223,395.84

-62,426.73-68,513.41

-56,781.12

-39,797.27

-36,812.72

-18,858.10

-36,298.91-31,422.79

-17,712.29


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Effects of financial crisis

StockMarket

Real estate

Indias Exports

Rupee value


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Not only thisbut !!

A crisis of poverty for much of humanity

Poor nations will get less financing for

development A crisis so severe, the world financial system is

affected

A

crisis so severe, those responsible are bailedout


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We could avoid the financial CRISIS

by

Quoting Stiglitz :

We had become accustomed to the

hypocrisy. The banks reject any suggestion they

should face regulation, rebuff any move towards

anti-trust measures yet when trouble strikes, all of

a sudden they demand state intervention: they must

be bailed out; they are too big, too important to be

allowed to fail.


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THUS..

The fruit of hypocrisy; Dishonesty in

the finance sector dragged us here and

Washington looks ill-equipped to guide us out


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Impact on different Sectors in India

IT Enabled Services sector got hit.

Manufacturing sector has to ramp up scale

economies. Tourism sector got affected.

loss of some jobs in India.

Exporters are pushing for governmentintervention.

GDP growth rate came down.


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List of Events


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Recovery Plan for India


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Indicator Period 2007-08 2008-09

Growth, per cent

Real GDP Growth April-December 9.0 6.9

Industrial

production

April-February 8.8 2.8

Services April-December 10.5 9.7

Exports April-March 28.4 6.4

Imports April-March 40.2 17.9

GFD/GDP April-March 2.7 6.0

Stock Market

(BSE Sensex)

April-March 16,569 12,366

Rs.per US$ April-March 40.24 45.92

Macro Key Indicators in India


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How to Overcome???

Governments in Market economies do not have direct control on

Producers &the consumers behavior; But, they can influence millions of

producers & consumers with Governments policies.

Government has 2 policy

instrument

Fiscal Policy

By Govt.

Monetary

Policy

By RBI.

Government influence the

economy by changing the

governments spend & collect

money

Central banks manipulate the

available supply of money in the

country


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How to come out of Recession?

FiscalPolicies

Government influence the economy bychanging the governments spend & collect

money

Tax cuts for

business or for

individuals

More spending

by govt. to create

jobs.

Automatic Fiscal

policy;

Unemployment

insurance

More money

available for

spending

Individuals get

salary & spend

money

Some income to

unemployed

peopole to spend

Demand Picks up;

Market can

recover


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How to come out of Recession?

Monetary

Policy

Reduce reserveratio

Lower the

interest rates

Use its

reserved

money to buy

Govt. bonds

More money

available forbank to give

loan

Individuals take

more loans

It becomes an

income to inject

money into the

market

Central banks manipulate the available supply of

money in the country

Demand Picks up;

Market can recover


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Precautions taken by Government

HLCCFM is readying a financial paper:

The high-level co-ordination committee on financial markets

(HLCCFM) which has representation from all financialregulators and finance secretary, is readying a paper that will

outline the mechanism to ensure financial stability in the

country. The paper is expected to be ready in 2 months. The

HLCCFM is chaired by RBI governor.

Source: The Economic Times.


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Precautions taken by Government

HLCCFM is readying a financial paper:

The high-level co-ordination committee on financial markets

(HLCCFM) which has representation from all financialregulators and finance secretary, is readying a paper that will

outline the mechanism to ensure financial stability in the

country. The paper is expected to be ready in 2 months. The

HLCCFM is chaired by RBI governor.

Source: The Economic Times.


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Current Economic Scenario Of

Indian Economy1)Private consumption growth has picked up at5.6% in the quarter

against the the dismal 1.6% in the Previous quarter.

2)Pick up in investments.3)Growth forecast for 2009-10 likely to be hiked to over 7%.

Source: The Economic Times


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Quarterly GDP growth by Industry

(YoY%)

Sector Q1 Q2 Q3 Q4 Q1 Q2

Agriculture and allied activities 3.2 2.8 -0.4 2.6 2.9 1.9

Agriculture 3 2.7 -0.8 2.7 2.4 0.94

Mining & Quarrying 4.6 3.7 4.9 1.6 7.9 9.5

Industry 6.1 6.3 2.1 1.4 4.8 8.2

Manufacturing 5.5 5.1 0.9 -1.4 3.4 9.2

Electricity, Gas & Water Supply 2.7 3.8 3.5 3.6 6.2 7.4

Construction 8.4 9.6 4.2 6.8 7.1 6.5

Services 10.2 9.8 10.2 8.6 7.8 9.3

Trade, hotels, transport & com. 13 12.1 5.9 6.3 8.1 8.5

Financing, insurance 6.9 6.4 8.3 9.5 8.1 7.7

Community, social & personal 8.2 9 22.5 12.5 6.8 12.7

GDP at factor cost 7.8 7.7 5.8 5.8 6.1 7.9

FY-2009 FY-2010


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In words of our Finance Minister

p1.doc


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THANK YOU!!!

RAMITNAIN (IB/44)

Global Financial Crisis Final

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