SUBMITTED BY: MAMTA

MEENA SHRUTI WASNIK

INDIAIMPACT OF FINANCIAL

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

Mortgage Crisis Explained

Wall street grew rich

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

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Reference