Global economic crisis

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A Presentation on topic Impact of Global Economic Crisis on Indian Economy...Team Members:
Dhanshekar A
Arjun Anil Shenvi
Karthik R
G Divya Dath
Nayana S
Sushma B U
Manoj N
Naveen K
Sumanth Surya M
Skanda R

at

ASC DEGREE COLLEGE, Amarajyothinagar, Vijayanagar, Bangalore-560040

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Global economic crisis

  1. 1. IMPACT OF GLOBAL ECONOMIC CRISIS ON INDIAN ECONOMY
  2. 2. A Slowdown in the US Economy is a Bad News for India. • Indian companies have major outsourcing deals from the US. • Indian companies have major outsourcing deals from the US. • India's exports to the US have also grown substantially over the years. • Indian IT companies with big tickets deals in the US would see their profit margins shrinking. • The whole of Asia would be hit by a recession as it depends on the US economy. • The whole of Asia would be hit by a recession as it depends on the US economy. • Asia is yet to totally decouple itself (or be independent) from the rest of the world, say experts. • Asia is yet to totally decouple itself (or be independent) from the rest of the world, say experts. • Outsourcing market is suffering from the recession in whole world and India IT sector is highly dependent on outsourcing mainly 60% on US. • Outsourcing market is suffering from the recession in whole world and India IT sector is highly dependent on outsourcing mainly 60% on US.
  3. 3. Indicators of Economic Crisis GDP CORPORATE EARNINGS UNEMPLOYMENT INFLATION
  4. 4. Background : India on the eve of the Crisis India’s engagement with the global economy became deeper from the 1990s. Total merchandise trade which was hardly 15 per cent of India’s GDP in 1990-91 (April- March) rose by nearly two and half times to 36 per cent of GDP in 2007-08; invisibles trade rose about fourfold from just 5 per cent of GDP to 19 per cent in the same period; and capital flows increased even faster at more than fivefold from 12 per cent of GDP to 65 per cent of GDP over the same period.
  5. 5. Just take the case of exports. Though the ratio of export of goods and services in India’s GDP was lower at 23 per cent in 2006 than that in China at 40 per cent (World Bank,2008), the contribution of export demand to GDP growth in India is not that much lowering comparison with China. This is so because the consumption-GDP ratio is much higher for India at 58 per cent (against China’s low 33 per cent) and the import-GDP ratio lower at 26 per cent (32 per cent for China) making the Keynesian income multiplier higher in India. Rough calculations indicate that a 10 per cent increase in export demand can raise the GDP by 4 per cent in China, other things being equal, whereas in India the rise in GDP is 3 per cent.
  6. 6. The deepening global integration of India has made it vulnerable to the global financial crisis. However, three factors helped India to cope with the crisis and soften the blow. They are: (1)Robust, well capitalized and well-regulated financial sector; (2) Gradual and cautious opening up of the capital account; and (3) Large stock of foreign reserves.
  7. 7. Questions To Address 1. Why was India hit by the crisis? 2. How was India hit by the crisis? 3. How did we respond to the crisis? 4. What is the outlook for India?
  8. 8.  Dismay on two counts that India was hit by the crisis :  First • Indian banking system had no exposure to tainted assets or stressed institutions. • Indian financial sector has only limited off-balance sheet activities or securitized assets. Second • India’s growth emanates from domestic demand and domestic investment. • India’s exports are less than 15 percent of GDP. Why was India hit by the crisis?
  9. 9. Questions To Address     1. Why was India hit by the crisis? 2. How was India hit by the crisis? 3. How did we respond to the crisis?   4. What is the outlook for India?
  10. 10. (i) Financial channel • Drying up of overseas financing. • Capital outflows as part of global deleveraging. • Reserve Bank’s intervention in the forex Markets. (ii) Real channel •Slump in demand for exports. •Service exports decelerated. (iii) Confidence channel • Tightened global liquidity eroded confidence. • This came on top of a turn in the credit cycle. How was India hit by the crisis?
  11. 11. Questions To Address     1. Why was India hit by the crisis? 2. How was India hit by the crisis? 3. How did we respond to the crisis?   4. What is the outlook for India?
  12. 12. Government •Fiscal stimulus Reserve Bank • Monetary accommodation • Countercyclical regulatory measures Reserve Bank of India’s (RBI) monetary policy response was guided by three objectives: • Ample rupee liquidity • Comfortable foreign exchange liquidity • Credit flow to productive sectors How Did We Respond to the Crisis?
  13. 13. Reserve Bank of India Conventional measures: •Reduction in policy rates •Reduction in cash reserve ratio •Relaxed norms for external borrowings •Raised interest rate ceilings on nonresident Indian (NRI)  deposits Unconventional measures: •Rupee-dollar swap facility for Indian banks •Special purpose vehicle (SPV) + refinance window for      nonbanking finance companies (NBFCs) •Refinance window for specific sectors
  14. 14. Questions To Address     1. Why was India hit by the crisis? 2. How was India hit by the crisis? 3. How did we respond to the crisis? 4. What is the outlook for India?
  15. 15. • Growth is consolidating. • Agriculture hit by monsoon failure. • Industrial growth getting broad based. • Investment intentions are strong. • Exports and import growth turned positive after 11–12  months. • Domestic and external financing conditions have improved. • Resurgence of positive sentiment. What is the outlook for India?
  16. 16. Quotes on Global Economic Crisis • “What we know about the global financial crisis is that we don't know very much.” -Paul A. Samuelson • “Inflation is taxation without legislation.” -Milton Friedman • In a time of crisis we all have the potential to morph up to a new level and do things we never thought possible. -Stuart Wilde
  17. 17. Anatomy ofAnatomy of The Economic Depression in IndiaThe Economic Depression in India • More people sold the shares in the Indian share market than they bought during in this period. This resulted the fall of Sensex to lower points. • Foreign investors have pulled out from stock markets leading to heavy losses in stocks and mutual funds • Stock broking houses are laying-off people • Because of such uncertainty many people have started saving money in banks rather than investing  Share Market:Share Market:
  18. 18.  IT and Real Estate Sector:IT and Real Estate Sector: • The key challenges faced by the industry now are inflation and the psychological impact of the US crisis, leading the companies to hit the panic button. • Bonuses, perks, lavish parties, and many other benefits are missing as companies look to cut cost. • India's IT export growth is also slowing down • One of the casualties this time are real estate, where building projects are half-done all over the country and in this tight liquidity situation developers find it difficult to raise finances.
  19. 19.  Industrial sectorIndustrial sector • Government and other private companies are reluctant in starting new ventures and starting new projects. • Projects that are halfway to completion, or companies that are stuck with cash flow issues on businesses that are yet to reach break even, will run out of cash. • Car, bike & truck sales down • Steel plants are cutting production • Hospitality and airlines are hit by poor demand
  20. 20.  Layoffs and UnemploymentLayoffs and Unemployment • Hundreds of workers have lost jobs in diamond jewellery, textiles and leather industry. • Companies in IT industry have stopped hiring and projected lower manpower need. • Firms attached to the capital market are laying off people and large companies are putting their future expansion plans on hold.
  21. 21. Consequences of Global Economic Crisis on India Expose of weaknesses in the economy.  Cost stabilization in real estate market.  Rationalization of salary structure in IT Industry.  Performance Appraisal is gaining ground.  Best place for outsourcing.  Opportunities for International trade. Positive Impact:
  22. 22.  Sudden sale of Stocks – Stock Market Crash.  Exports come down.  Layoffs.  Work long for less salary.  Rupee weakening against dollars.  Banks on severe Cash Crunch. Negative Impact:
  23. 23. Opportunities inOpportunities in India due toIndia due to Global EconomicGlobal Economic CrisisCrisis • People are thinking that crisis is becoming a disaster for the Indian economy. Actually, crisis is actually a great time to start a new venture. • Great time to take advantage of the lack, when talent is available, resources are cheaper. • Fact whenever there is a lack people outsource more. • Fact whenever there is a lack people outsource more. • Western companies started viewing India as good place to outsource big research work, website development, designing work etc. • Long-term market then they can say when the crisis in the US financial market come down, Indian IT and BPO/ KPO companies will be in good position to get more outsource projects from the US companies. • Recently Indian outsourcing software and web development industry have started a new strategy to compete with recession by keeping their expenses as such and higher the working time of the staff, higher the quality of out put and reduce the out put time.
  24. 24. Recommendations  RBI needs to neutralise the outflow of FII money by unwinding the market stabilisation securities that it had used to sterilise the inflows when they happened.  This will mean drawing down the dollar reserves which is important at this hour.  In the IT sector, there should be correction in salary offerings rather than job cutting.  Public should spend wisely and save more.
  25. 25.  Taxes including excise duty and custom duty should be reduced to lighten the adverse effect of economic crunch on various industries.  In real estate the builders should drop prices, so as to bring buyers back into the market.  Also, the government should try and improve liquidity, while CRR and SLR must be cut further.  Indian Companies have to adopt a multi-pronged strategy, which includes diversification of the export markets, improving internal efficiencies to maintain cost competitiveness in a tight export market situation.  This above recommendations should act to faster growth in short-term and lay strong foundation in long term economic stability.
  26. 26. Conclusion In the IT sector, there should be correction in salary offerings rather than job cutting. In the IT sector, there should be correction in salary offerings rather than job cutting. Taxes including excise duty and custom duty should be reduced to lighten the adverse effect of economic crunch on various industries. Taxes including excise duty and custom duty should be reduced to lighten the adverse effect of economic crunch on various industries. IT Industry has been largely hit by Recession , resulting in Lay-Offs. But people with skill set are required in the Industry. IT Industry has been largely hit by Recession , resulting in Lay-Offs. But people with skill set are required in the Industry. Layoffs in Technical Sector need not be a doom and gloom. They could actually boost innovation as laid-off engineers , scientists and other skilled individuals decide to pursue their own ideas. Calling it “ forced” entrepreneurship. Come out with Innovative Strategies for Customer Relationship Management (CRM)
  27. 27. References • en.wikipedia.orgen.wikipedia.org • www.moneycontrol.comwww.moneycontrol.com • Images.google.comImages.google.com • cartoonistsatish.blogspot.comcartoonistsatish.blogspot.com • www.scribd.comwww.scribd.com • rbi.org.inrbi.org.in • www.authorstream.comwww.authorstream.com • www.economywatch.comwww.economywatch.com • www.ncaer.orgwww.ncaer.org
  28. 28. Our Heartfelt Thanks to: • Prof. Naveen, Dept. of Economics, ASC Degree College. • Prof. Ramakrishna Murali, Principal, ASC Degree College. • Prof. Vijay, Dept. of Accountancy, ASC Degree College. and our other lecturers and classmates…
  29. 29. ‘AMATEUR’ Group Members: Dhanshekar A Karthik R G Divya Dath Nayana S Sushma B U Manoj N Naveen K Sumanth Surya M Skanda R Arjun Anil Shenvi
  30. 30. End of the Presentation

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