31426896 impact of recession on indian economy and future trends

8/14/2019 31426896 Impact of Recession on Indian Economy and Future Trends

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IILM GURGAON----------------------

KEYNOTEADDRESS

18 APRIL, 2009

IMPACT OF RECESSION ON INDIAN ECONOMYAND FUTURE TRENDS

PROF. DEEPAK TANDON


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A QUICK LOOK AT FACTS

Worlds largest democracy

Ethnically diverse

26% below poverty line

Struggle for freedom


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Price 200 200!

WP"# $ & ' ( $00 )*eb 0+ 22,-! 2$!-'

.P"# 200$ ( $00 )/an 0+ $'! $'

Bank Rate Percent Effective

i- an1 ate 6-00 2-0'-200

Rati! Percent )w-e-f-+

. 3-00 $,-0$-200

2- S4 2'-00 0!-$$-200!

- epo ate 3-00 0'-0-200

'- everse epo ate -30 0'-0-200

3- .ash 5ep atio 3-,, 2,-02-200

6- "nvestment 5ep atio $-, 2,-02-200

.redit 5ep atio ,$-'2 2,-02-200


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In" a #i $e t%e &r" Lar'e!t ecn()

#it% t%e Fa!te!t rate f *r#t%

5-Ye

arPeriod

Averag

e

Percent

Annum

Pe

INDIA in +,-,

8

7

6

5

4 i

3

2

Brazil

China

India

Russia

1

0

2005-10 2015-20 2025-30 2035-40 2045-50


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DEMO*RAP/IC AD0ANTA*E

7oungest Population in the World#8ore than half of "ndias population is below 23 yrs age6

6

9ver the ne:t 3 years; "ndia alone will account for more than $


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RECESSION

> recession is a decline in a countryAs gross domestic product )?5P+ growth for two or more consecutive Buarters of a year- > recession is also preceded by several Buartersof

slowing down-- "t is the contraction phase of a usiness cycleT%e I(1act! in In"ia are2

$- educed liBuidity in the "ndian economy

2- educed industrial output

- educed Cob opportunities

'- Stoc1 8ar1et is lingering in the bottom

3- eal estate mar1et has started to ta1e a beating

6- "nflation has increased

,- ?5P has come down and the ?P5 forecast for the ne:t two Buarters are only

averaging down


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CAUSES OF RECESSION

3. CURRENCY CRISIS

2-

&. INFLATION

'-

-. NATIONAL 4 *O0ERNMENT DEBT

6-

5. SPECULATION

!-

6. 7AR

$-


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EFFECTS OF RECESSION

3. BANKRUPTCIES

2-

&. DEFLATION

'-

-. FORECLOSURES

6-

5. REDUCED SALES

!-

6. STOCK MARKET CRAS/

$0-

33. UNEMPLOYMENT


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efore; understanding Decession; we need to understand

the mar1et economyF


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A8 T7O STA*ES OF MARKET ECONOMY

t


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r# n' ar etEcn()

Starting Point ( Willingness tobuy


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Decinin' Market Ecn()

Starting Point ( Gnwillingness to

buy


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B8 T7O FACTORS OF MARKET9 : DEMAND ; SUPPLY

Pr"


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/O7 TO COME OUT OF RECESSION=

"mportant Point#@oday; it is a mar1etEconomy

P r odu c e r s F.an produce andsell at their prices

. o n s u me r s F.an decide tobuy or notF


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*iscal Policies)y ?ovt-+

8onetaryPolicies

)y "+

?overnment influences theeconomy by changing how

it )?overnment+ spendsand collects money

" manipulates theavailable supply of

money in the country


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89IE@>7 P94".7 =9/E.@"JES

T7IN OB>ECTI0ES

maintaining price stability

ensuring availability of adequate credit to productive

sectors of the economy to support growth


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MONETARY POLICY: BASIC THRUST

En! inve!t(ent "e(an" in t%e ecn()

T re!1n" !#ift) t evvin' '$a "eve1(ent!.


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8onetaryPolicy & "nstruments

Direct Instruments Indirect Instruments

6OpenMarket Operations:Reserve

Bank controls money supply by buying

and selling government securities, or

other instruments

6MarketStabilisation

Scheme (MSS)

Government of India dated

securities/Treasury Bills are

being issued to absorb

enduring surplus liquidity.

6LiquidityAdjustmentFacility

(LAF)

6Repo uctions and

6Reverse Repo uctions,

6CashResere Ratio (CRR)

!inimum amount that


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commercialLAF has emer!ed as the tool "or both liquiditbyanmkas

nmau!stekmeenatsacnasdh arelseorvaes a

si!nalin! deise "or interest rate in theoerni!ht market#


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cnc

K"n *eb=0; "ndiaAs e:ports declined by 2$-,% )y=o=y+; while imports declined at a faster

pace of 2-% )y=o=y+; resulting in shrin1ing of trade deficit to GSL '- bn-

K@he current account deficit amounted to GSL $'-6 bn during H *70; the highest

Buarterly deficit since $0-

K@he capital account balance turned negative during H *70 for the first time since H$

*7-

K"ndiaAs total e:ternal debt stoc1 increased by 2-!% to GSL 20- bn at the end of 5ec=

0! over end Sep=0!-

K@he ratio of foreign e:change reserves to total e:ternal debt as at end 5ec=0! stands at

$$0- %-

K"ndiaAs real effective e:change rate )EE+ remains undervalued at '-0 )as on $=*eb=0+-


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FINANCIAL YEAR +,,6

INFLATION 2

9ne of the biggest concerns for the "ndian Economy !ee(! t %ave $een tacke"; certainly in the medium term- @he infatin for the wee1=ended 8arch 20; 200 came in as 5.5-- @he Prime 8inister must be than1ing his stars or his calculations; and if the current trend continues ; and it should; by the time the 200 4o1 Sabha elections campaigning starts; inflation would no longer

be an issue and many middle class families might actually be than1ing the government-

@hough the e?1rt! have declined from L$-,' billion in September to 33.- $iin in Nve($er+,,; the i(1rt! "ecine" fr( +.& $iin t +3.-5 $iin in the corresponding period;

mainly on the account of the fall in crude prices- @he crude bill has dropped from around L billionto L,-23 billion in Iovember 200!-

>s a result the Tra"e Deficit %a! narr#e" t 3,.,5 $iin in Iovember compared with L$0-3'billion in 9ctober and L$0-63 billion in September 200!- @he total trade deficit for the period A1ri:Nve($er +,, !t" at .& $iin

"n short; though recession has hit our e:ports; the fall in the import bill more than ma1es up for the effectof the recession- Even in the recession; the e?1rt! in the ei'%t (nt%! en"e"Iov- 0 rose $-'

percent from a year earlier to 336.& $iin- .ertainly not bad by any stretch of imaginationconsidering the global recession-


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FINANCIAL YEAR +,,6

@he total i(1rt $i for the >pril=Iovember 200! period stood at +,&. $iin of which 9il imports

were valued at L,'-$$' billion- .onsidering that crude trade well over L$00


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In"ian tra"e !cenari

Marc% +,,6 nt affect a! *reat a! *$a Deve1e" Cmerica and South=east >sia remains MBuite highM; but it needs

to pic1 up in G-S- and Europe; which consume about 3 percent of "ndian e:ports

?rowth of less than , percent - Nigh borrowing costs and followed by the global crisis slowed >siaAs third

largest economy last year; and analysts forecast less than 6 percent e:pansion in the current year to

8arch 20$0-

.ontraction in demand at home and abroad has cut "ndiaAs factory output and e:ports sharply since

9ctober-

"ndiaAs industrial output contracted $-2 percent in *ebruary from a year earlier and e:ports were down

more than a fifth-


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CAUSES

3. SUB PRIME LENDIN* CRISIS

2-

-

. TI*/TENIN* OF LIQUIDITY

3-

6-

5. RISIN* OIL PRICES!-

-

3,. CAPITAL FLI*/T IN EMER*IN* MARKETS


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EFFECTS

3. DIFFICULTY IN BORRO7IN*

2-

-

'-

-. UNEMPLOYMENT

6-

,-!-

6. FAILIN* PROFITABILITY

$0-

$$-

$2-

3&. FALLIN* STOCK MARKET$'-

$3-

$6-

35. DECLINE IN CUSTOMER CONFIDENCE


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"ndia in the emergingorder = aim

BPLR which is at $,-23% to be 3+

L#erin' of the domestic intere!t rate! to ma1e retail ban1ing more attractive

S#a11in' of the local currency with respect to the foreign currency

E. norms liberaliOed to inf


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8ulti faceted growth in 33t% five )ear 1an-


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Ke)cnce1t! an" "eve.1(ent!

3. >I >@E

$-

+. .$-

&. S4$-

. EP9 >@E$-2-

-. EJESE EP9 >@E


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STATE OF 7ORLD

World economy e:pected to slow down from 3% in 0, and -,% in 0! to Cust 0-3% in 0

@he world economy is in Qprecarious territory = 9utput in advanced economies will contract in200

> deep financial crisis and volatile commodityprices have led to fast deteriorating global growth

WorldEconomic

Outlook,

January28, 2009

nternational!onetary"und

#

5

$

%

2

&

0

'0% '0$ '05 '0# '0( '08 '09


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STATE OF 7ORLD ECONOMY2 SCENE

*DP *r#t% Rate! $) Ca1an 3.6 +. +.3 3. 3.-

R

CIS . 3,.3 6. 5. 5.,

C%ina 3,. 33.3 33. 6.& 6.-

ASEAN J I!*+!e), M&"), %eP)&)(()!e ' T)&!*G -.3 -.5 .& -. .,

"ndia 6., 6.5 6.+ 5.6 .,


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*DP *r#t% Rate! $) Ca1an 3.6 +. +.3 ,.5 ,.-

R

CIS . .+ . 5.+ -.5

C%ina 3,. 33. 33.6 6.5 6.&

ASEAN J I!*+!e), M&"), %e

P)&)(()!e ' T)&!*G

-.3 -.5 .& -.- .6

"ndia 6., 6. 6.& 5.6 .6


38/45

*DP *r#t% Rate! $) Ca1an 3.6 +. +.3 ,.- :,.+

R

CIS . .+ . .6 &.+

C%ina 3,. 33. 33.6 6.5 .-


P)&)(()!e ' T)&!*G

-.3 -.5 .& -. .+

"ndia 9)0 9)8 9)% ()8 #)%


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*DP *r#t% Rate! $) Ca1an 3.6 +. +.3 ,.- :+.

R

CIS . .+ . .6 : ,.

C%ina 3,. 33. 33.6 6.5 .5


P)&)(()!e ' T)&!*G

-.3 -.5 .& -. +.5

"ndia 6., 6. 6.& 5. -.3


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SUR0I0AL

3. RE E0ALUATE YOUR ENTIRE PRICIN* STRUCTURE

2-

&. T/INK STRATE*ICALLY

'-

-. *O BAR*AIN /UNTIN*

6-

5. CONSIDER STRATE*IC IN0ESTMENTS

!-

6. MONITOR YOUR CAS/ FLO7S

$0-

33. EN*A*E YOUR EMPLOYEES IN T/E PROCESS

$2-

3&. TALK TO YOUR BANK IN0ESTORS AND OT/ER SOURCES OF CAPITAL


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ADAPT TO RECESSION

3. PRO>ECT CAS/ FLO7 IN AD0ANCE AND MONITOR BUD*ET

2-

&. PRESSURISE DEBTORS TO PAY UP

'-

-. RE0IE7 O0ER/EADS AND IMPRO0E COST EFFICIENCY

6-

5. REDUCE STOCK LE0ELS

!-

6. KEEP UP TO DATE 7IT/ LATEST FINANCIAL INFORMATION

$0-

33. A**RESI0ELY SEEK NE7 BUSINESSES

$2-

3&. BE OPEN TO NE7 IDEAS AND ACCEPT


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S7OT ANALYSIS

3. A0OID TAKIN* BAD BUSINESS

2-

&. SUR0I0AL IS MORE IMPORTANT T/AN SIE

'-

-. OPERATE IN .LEAN AND MEAN/ MODE

6-

5. LOOK FOR TALENTED UNEMPLOYED PEOPLE

!-

6. MARKETIN* ASSUMES FURT/ER IMPORTANCE

$0-

33. A**RESI0ELY PURSUE DEBTORS FOR PAYMENTS

$2-


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REMEDIAL MEASURES

Mnt%) freca!t! fr 7PI CPI IIP *r#t% Bank Cre"it 3-:63 "a):T:Bi! )ie" 3, )ear

*:!ec )ie" an" E?c%an'e rate

S(e ear) !i'n! f !ta$iit) e(er'e in t%e ecn()

T%e 7PI infatin e?1ecte" t t


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.Things will change with hard work & time ...But there will be pain initially.

TH!" #$%

31426896 impact of recession on indian economy and future trends

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