The document discusses the global financial crisis and its impact on the Indian economy. It provides background on how the crisis began in the US due to risky lending practices and how it spread globally. While many countries experienced economic downturns, India was less impacted due to its strong domestic savings and investment rates. The Indian government and central bank implemented stimulus measures to support the economy. Overall, India appeared to be in a better position than other nations to weather the financial crisis.

1. GLOBAL FINANCIAL CRISIS AND ITS IMPACT ON THE INDIAN ECONOMY “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

2. Author: Shradha Diwan 08 BS 000 3170 Class of 2010 ICFAI Business School, Kolkata Organizations: INSTITUTE OF INTERNATIONAL TRADE, KOLKATA ICFAI BUSINESS SCHOOL, KOLKATA

4. A disorderly contraction in wealth and money supply in the market

5. Credit Creation

6. Life-blood of the Banking System

7. Irrational and Unsustainable Consumption in the West

8. Greed of Investment Bankers

9. Failure of Regulating Agencies

10. Fallacious Rating by Rating AgenciesBackground of the FINANCIAL CRISIS

11. US Banks gave high-risk loans to people with poor credit histories Loans, bonds, or assets are bundled into portfolios or Collateralized Debt Obligations (CDOs) and sold to investors across the globe HOW DID THE CRISIS BEGIN?

12. Failing Housing Prices and Rising Interest Rates led to high numbers of people who could not pay their mortgages Investors suffered losses; Reluctant to take on more CDOs CREDIT MARKETS FROZE; banks became reluctant to lend to each other HOW DID THE CRISIS BEGIN?

13. Rate of unemployment hikes to 8.9% in the US: 539,000 jobs lost US GDP shrinks by 8.1% in the first Quarter US Foreclosures spike 32% in April, 2009 US Home Prices fall 14% in first quarter UK: 5000 businesses registered for bankruptcy in Q1 IMF: Economic Crisis to cost $ 4 trillion Germany sees GDP plunge 3.8%, worst drop in 40 years GDP of Euro Area falls by 1.6% Impact around the Globe

14. Availability of global liquidity Decreased consumer demand affecting exports The Financial Crisis and the Indian IT Industry The Financial Crisis and India’s Financial Markets INDIA and the FINANCIAL CRISIS

15. India’s Household and Corporate Savings will fuel the domestic economy at a time when the global liquidity crunch is aggravating the economic downturn in other parts of the globe. Gross Domestic Savings rate of India has risen steadily from 23% in the 1990s to 35% in 2006-07; estimated to be around 32% this fiscal. GLOBAL LIQUIDITY CRUNCH and INDIA

16. GLOBAL LIQUIDITY CRUNCH and INDIA

17. Even if India’s savings and investment rates undergo a cyclical reduction in FY09, by next fiscal (FY10) these rates should still be around 30%, with 6% growth in the second half of FY10. GLOBAL LIQUIDITY CRUNCH and INDIA

18. “Asia is suffering from two recessions: a domestic one as well as an external one.” Shipments of Indian natural pearls, precious and semi-precious stones, and pharmaceutical products, all recorded a decline causing Indian exports to the US to drop by 22.63% to $5.22 billion in Q1 of 2009. 12% of India’s total exports of $168.7 billion in FY2008-09 went to the US. Decreased Consumer Demand affecting EXPORTS

19. Financial Crisis: India’s IT Sector

20. Financial Crisis: India’s IT Sector Price negotiations and increased commitments on the service level raised the share of US financial services revenue as a percentage of total revenues for the Top 3 Indian players from 25% to 38% between 1999 and 2008.

21. The SATYAM SAGA Financial Crisis: India’s IT Sector Some factors offsetting the revenue slowdown are: Favorable Rupee-dollar exchange rate Growth de-risking through Europe Growth in non-financial verticals Growth through counter-cyclical new business (countercyclical to US slowdown)

22. Financial Crisis: India’s IT Sector Opportunities for India’s IT Sector Growth vs. Profitability Tradeoff Implement Investment Ideas by diverting unnecessary fixed costs M&A in US in both Financial and Non-financial Sectors Operational Efficiencies; Cheap Labor Market

23. Declinein RBI’s Forex Reserves Depreciationof the Rupee Declinein Stock Market Indices INDIAN FINANCIAL MARKETS

24. Foreign Exchange Reserves held by the RBI INDIAN FINANCIAL MARKETS

25. Rupees per US Dollar INDIAN FINANCIAL MARKETS

26. Sensex Daily Movements INDIAN FINANCIAL MARKETS

27. Foreign Investment INDIAN FINANCIAL MARKETS

28. Cumulative FII Investments in Equity INDIAN FINANCIAL MARKETS

29. FIIs and the Stock Market INDIAN FINANCIAL MARKETS

30. Foreign Investment and Change in Reserves INDIAN FINANCIAL MARKETS

31. BAILOUT PACKAGES The US Federal Government has pledged more than $11.6 trillion over the past 20 months Past Event US$ billion Invasion of Iraq 597 Life Time Budget of NASA 851 S & L Bailouts of 1980s 256 Louisiana Purchase 217 Korean War 454

32. INDIA’S RESPONSE TO THE CRISIS GOVERNMENT FISCAL STIMULUS RESERVE BANK OF INDIA MONETARY ACCOMODATION

33. INDIA’S RESPONSE TO THE CRISIS RBI’s targets To maintain a comfortable rupee liquidity position To augment foreign exchange liquidity To maintain a policy framework that would keep credit delivery on track so as to arrest the moderation in growth RBI’s Conventional Measures Reduced the policy interest rates aggressively and rapidly Reduced the quantum of bank reserves impounded by the central bank Expanded and liberalized the refinance facilities for export credit

34. Government’s Measures Relaxed: Fiscal Responsibility and Budget Management (FRBM) Act Additional public spending, particularly capital expenditure, government guaranteed funds for infrastructure spending Cuts in indirect taxes, Expanded guarantee cover for credit to micro and small enterprises, and Additional support to exporters. INDIA’S RESPONSE TO THE CRISIS US$ 75 billion or 7% of GDP

35. Headline inflation has fallen sharply; inflation declined faster than expected Decline in inflation positive for reviving consumer demand and reducing input costs for corporates Fiscal space will open up for infrastructure spending - decline in global crude prices and naphtha prices will reduce the amount of subsidy given to the oil and fertilizer companies iv. Imports are expected to shrink more than exports; - moderation of current account deficit INDIAN ECONOMY – THE ROAD AHEAD

36. Sound banking system has helped to sustain the financial market stability Comfortable levels of foreign reserves: confident overseas investors Indians stay away from asset and equity markets India’s mandated priority sector lending: agriculture sector will be unaffected Agriculture sector further insulated due to the government’s farm waiver package x. Social safety programs protect the poor and migrant classes INDIAN ECONOMY – THE ROAD AHEAD

37. ENTREPRENEURSHIP in times of FINANCIAL CRISIS MICROSOFT GENENTECH GAP HEWLETT-PACKARD TEXAS INSTRUMENTS UNITED TECHNOLIGIES POLAROID REVLON

38. THANK YOU FOR YOUR TIME AND PATIENCE Shradha Diwan Class of 2010 IBS, Kolkata “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