Sunil Bhardwaj

7/30/2019 Sunil Bhardwaj

1/32

EXPOSUREOFGLOBALFINANCIALCRISISONDEVELOPINGWORLD; AN INDIANEXPERIENCE

Sunil Bhardwaj & Rohit Bhagat

The Business School

Bhaderwah Campus, University of Jammu


2/32

CONTENTS

1. Introduction

2. Literature Review

3. Objectives of the Study

4.

Research Methodology5. Data Collection

6. Discussion and Observations

7. Conclusions

8. Suggestions and Recommendations9. References


3/32


4/32

ECONOMIC SUSTAINABILITY

A sustainable economy ensures and encompasses variousaspects such as economically healthy businesses withminimum impact on environment, sustainable agriculture,growth management, appropriate development of rural

resources, improved trading and tourism and low impactregional planning and transportation systems.Technological advances in business, health, education andenvironment that provide new opportunities for

communities (Dr. Aditi Sawant and Dr. Sachin KumarSharma, 2012).


5/32

RATIONALEOF ECONOMIC SUSTAINABILITY

Economic sustainability is becoming more and morecomplex due to increasing integration of domesticeconomy with the global economy as thesustainability is correlated with the country specific

as well as global variables. Economic sustainability becomes even more

necessary for the country like India which is thehome of 17.6 per cent of world population out of

which approximately 55 per cent are poor (UNDP andOxford University, 2010).


6/32

LITERATURE REVIEW

There is a huge literature available on sustainabilityof economies in general and sustainability ofIndian economy in particular. Different researchershave adopted different approaches andperspectives to the economic sustainability.

1. Dr. Aditi Sawant and Dr. Sachin Kumar Sharma(2012) have given the impact of FDI on thesustainability of Indian economy in the post crisisperiod.

2. Dr. Vinay Sharma and Aditi Sengar (2012) in theirresearch work show that sustainability ischallenge for businesses in rural market andrecommend that building sustainable marketlinkage can combat this issue.


7/32

LITERATURE REVIEW

3. Rajat Setia, Chandan Sharma (2012) shows arelationship between the exchange rate andmacroeconomic fundamentals which hold in thelong run but the composition of parameters andtheir effect varies considerably overtime.

4. Kalim Siddique (2009) says that decoupled Asiafrom the rest of the world is too ambitious andshows the effect of financial crisis on India andChina.

5. Raghbendra Jha (2009) identifies the channelsthrough which the global financial crisis hasimpacted the Indian economy and examinedshort-run prospects for the Indian economy inthe light of the global financial crisis andeconomys recent dynamism.


8/32

OBJECTIVESOF STUDY

1. To examine the extent of decoupling of Indian economyfrom the world economy.

2. To analyse the effect of global slowdowns on Indianeconomy.

3. To recommend policy measures to make our growth storymore sustainable in nature.


9/32

RESEARCH METHODOLOGY

1. The piece of research is descriptive and analyticalin nature.

2. The features of this type of research are to reportthings that have happened or happening withouthaving much control over these variables.

3. The research uses facts and figures alreadyavailable for analysis and inference by criticalevaluation of data.


10/32

DATACOLLECTION

The paper uses secondary data for analysis anddiscussion. This includes:

1. Research Publications

2. Magazines3. Reports

4. Publications of Organisations

5. Data and Statistics compiled by institutions

6. Research Journals etc


11/32

Analysis &Observations


12/32

GLOBAL FINANCIAL CRISIS (SUBPRIMECRISIS2008)

Lehman Brothers Holdings Inc has gone bust

Merrill Lynch sold to Bank of America

Goldman Sachs & Morgan Stanley, two imp. Security firmdecided to convert themselves into retail banking

American International Group (AIG) was bailed out by USgovt. in exchange for 79.9% Equity.


13/32

FACTORS BEHIND

US long continuous growth with low inflation whichmade mkt. & regulators complacent

During good time Financial institutions grew big,took big risks, made huge profits & innovated manycomplex financial product and derivatives

Banks took High riskswithout sufficient capital onthe balance sheet to support it

US risk management lagged behind innovation inthe financial system.

Results in liquidity crunch turning into Insolvencythus drying up of demand


14/32


15/32

EXPORT, IMPORT & FOREIGN TRADE- % YOYGROWTH (ASON APRIL,2012)

-60

-40

-20

0

20

40

60

80

100

Jan-09

F

eb-09

M

ar-09

A

pr-09

M

ay-09

J

un-09

Jul-09

A

ug-09

S

ep-09

O

ct-09

N

ov-09

D

ec-09

Jan-10

Feb-10

M

ar-10

Apr-10

M

ay-10

Jun-10

Jul-10

A

ug-10

Sep-10

Oct-10

N

ov-10

D

ec-10

Jan.'11

F

eb.'11

Mar.'11

Apr.'11

May'11

Jun'11

Jul'11

Aug'11

Sep'11

Oct'11

Nov'11

Dec'11

Jan'12

Feb'12

Exports

Imports

Economy

Slowdown

Recovery


16/32

EURO ZONE CRISIS

Europe & Euro Zone account for significant market for India Euro zone account for 20.2% Indias exports 13.3% of Indias Imports FDI from Europe amounted to euro 3.0 billion & Indias

investment was euro 0.6 billion Bilateral trade has been growing at an average of 9.6% (2006-

10) EU imported goods of worth euro 33.1 billion form India EU exported goods of worth euro 34.8% billion to India

BESIDES THREE CHANNELS


17/32

Indian economy is scrambling for 6% growthrate

7-7.5 % forecasted by World Bank

6.5% by RBI

5.5% by CRISIL (Latest)- July 2012 56% of the 1.154 Indian companies analysed, have reported a

decline in the net profit for the Quarter 1 of the FY 2012-13(CRISIL)

Inward FDI is estimated to decline by a substantial range of53% from $16.3 billion in Q1 of FY 2011-12 to $ 7.7 billion in theQ1 of FY 2012-13

The FDI in India in June 2012 to $1.24 billion from $5.66billion in the same period a year earlier


18/32

BALANCEOF PAYMENT

-300000

-200000

-100000

0

100000

200000

300000

400000

500000

2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

Current Account

Capital Account

Overall BoP Balance


19/32

BoP surplus for first three years 2004-05 onwards BoP deficit due to CAD i.e.

Rs 12174crores in 2004-05 to Rs 202532 Croresin 2010-11

Highest BoP surplus Rs 369689 Crores during2007-08

As reaction to US crisis BoP turn negative Rs97115 crores in 2008-09

Trade deficit was US$ 184921.69 mn for April-march 2011-12 higher than the deficit of US$118632.93 mn in April-march, 2010-11.


20/32

CRUDE OIL

36.54

29.86

29.12

34.6

45.78

58.83

66.45

71.03

97.33

57.18

75.05

88.93

93.47

0

20

40

60

80

100

120

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Oil prices in $/bbl

Oil prices in $/bbl

India imports 70% crude oil consumption


21/32

DEPRECIATIONOF CURRENCY

Euro-zone resulting in euro losing value against USDollar

Depreciate more than 20-25% against USD with RBIlosing $40-50 billion in reserves in the last fewmonths

RBIs intervention in the forex market has resulted inthe decline of $336.5 million in the forex reserve to$287.62 billion on week ending 6 July 2012


22/32

DEPRECIATIONOF CURRENCY

44.368

44.904

44.851

44.415

45.278

47.638

49.256

50.843

52.667

51.346

49.163

50.145

51.541

54.638

56.181

55.464

55.614

54.973

0

10

20

30

40

50

60

Exchange rate per US dollar

Exchange rate per USdollar


23/32

INFLATIONAND ECONOMIC GROWTH

13.33

9.41

8.43

8.99

10.06

9.39

9.34

6.49

5.32

7.57

8.65

10.2210.16

10.05

0

2

4

6

8

10

12

14

Apr/10

May/10

Jun/10

Jul/10

Aug/10

Sep/10

Oct/10

Nov/10

Dec/10

Jan/11

Feb/11

Mar/11

Apr/11

May/11

Jun/11

Jul/11

Aug/11

Sep/11

Oct/11

Nov/11

Dec/11

Jan/12

Feb/12

Mar/12

Apr/12

May/12

Jun/12

Inflation rate (%)

Inflation rate (%)

SELF DEFEAT FOR THE ECONOMY


24/32

REPO & REVERSE REPO

7.5

6.5 5.5

54.75

5

5.25

5.75

6

6.25

6.5

6.75

7.25

7.58

8.25

8.5

8.5

8

6

5

4 3.5

3.253.5

3.754.5

5

5.25

5.5

5.75

6.256.5

7

7.25

7.5 7.5

7

0

2

4

6

8

10

12

14

16

18

Reverse Repo (%)

Repo (%)


25/32

SLR & CRR

24

24

24

24 24

24 24 24

2524 24

24 24

25

7.75

8.25

8.75

9

6

5.5

5

5.75

6 6 6 5.5

4.75 4.75

0

5

10

15

20

25

30

Apr/08

Jun/08

Aug/08

Oct/08

Dec/08

Feb/09

Apr/09

Jun/09

Aug/09

Oct/09

Dec/09

Feb/10

Apr/10

Jun/10

Aug/10

Oct/10

Dec/10

Feb/11

Apr/11

Jun/11

Aug/11

Oct/11

Dec/11

Feb/12

Apr/12

Jun/12

SLR (%)

CRR (%)


26/32

CONCLUSION

Economic sustainability is a complex challenge for the countries in

globalised world where the linkage between the countries is higher

and isolation is limited, means any economic disturbance in one

region affects the sustainability of other regions. In this study wehave highlighted the challenges that are coming in the way of

sustainability. There are various domestic and global factors like US

subprime crisis, Euro zone debt crisis, crude oil prices, inflation,

Balance of payment, Fiscal slippage and policy paralysis which are

important for the sustainability of the country that is evident from the

past experience of India. So proper manoeuvring of these factors is

the need of the hour.


27/32

SUGGESTIONSAND RECOMMENDATIONS

1. To achieve sustainability good quality infrastructure is the most critical physicalrequirement for retaining faster growth and also stimulating foreigninvestments into Indian economy.

2. Economic reforms related to macro policies (Fiscal, trade, financial, monetaryand judiciary) keeping in view all the sectors and sections of the society canhelp the country to achieve sustainability.

3. Foreign Investments in the form of FDI, FII, and FPI are very necessary for thecountry like India as it acts as an important source of long term as well as shortterm funds dismantling of barriers and induction policies in respect to theseinvestments must be adopted so as to lure the foreigners towards large Indianmarket.

4. Technological innovations and modernization is very necessary in order toincrease the quality production so that exports can be enhanced and imports can

be substituted.5. From the experience of global financial crisis, it is clear that neo-liberal

economic policy of India has failed. So, there is a need for the restructuring andremodelling of Indias economic policy keeping in mind the complexities ofglobalisation.


28/32

SUGGESTIONSAND RECOMMENDATIONS

1. The root cause of Indian economy is the lack of political will inimplementing reforms but the recent step of allowing 51 per centof FDI in multiple brand retail seems to be in the right direction.So the policy paralysis must not be there.

2. It is evident from the current scenario that Indian economy isaffected to a large extent by the slowdown in Euro zone countries.

So, India must encourage trade with more and more countries sothat one countrys slowdown can be overcome by the trade withthe other ones.

3. Fiscal slippage is an important issue in Indian economy as it isadding to the countrys inflation and also negatively affecting thecountrys GDP growth rate which necessitates the fiscal discipline

in our fiscal policy.4. As India imports 70 per cent of the crude oil which is a huge fiscal

burden on the country. It necessitates the shift from non-renewable resources to the renewable sources of energy like windenergy, solar energy, water energy, hydrogen energy etc.


29/32


30/32

WEBLIOGRAPHY/ BIBLIOGRAPHY/ REFERENCES

1. IMF (2011) Euro area policies: Spill over report 2011, WashingtonDC. http://www.imf.org/external/pubs/ft/scr/2011/cr11185.pdf

2. Government of India (2011): Ministry of Commerce, New Delhi.http://commerce.nic.in/tradestats/filedisplay.aspx?id=1

3. Basant K Sahu (2011): Growth experience during post reformperiod in India economics and trade policy.

4. Indian Institute of Foreign trade New Delhi.

5. Government of India (2012): Economic Survey 2012. Ministry ofStatistics and Programme Implementation, Central StatisticalOffice: Government of India. http://indiabudget.nic.in

6. Rupee Depreciation: Probable causes and outlook by AmolAgrwal.


31/32

LIMITATIONS/SCOPE

It is a macro-analysis analyzing the effect of global

slowdowns on macro-variables of the country.

Study do not shows the extent to which different

sectors are effected by global slowdown.

Tax regulation, News of corruption and scandals, redtape delays, absence of reforms, political andregulatory uncertainty and policy paralysis

THAT WILL CONSTITUTE THE FUTURE SCOPE OFOUR STUDIES


32/32

Queries Please

Documents

Sunil Bhardwaj