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8/9/2019 Global Financial Crisis Final
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GLOBAL FINANCIAL CRISIS
&
RECOVERY PLAN FOR INDIA
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What is Financial Crisis?
The term financial crisis is applied broadly to
a variety of situations in which some financial
institutions or assets suddenly lose alarge part of their value.
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A short list of some major financial crises since 20th century
1910 Shanghai rubber stock market crisis
1930s The Great Depression the largest and most
important economic depression in the 20th century 1973 1973 oil crisis oil prices soared, causing the 1973
1974 stock market crash
1980s Latin American debt crisis beginning in Mexico
1987 Black Monday (1987) the largest one-day percentagedecline in stock market history
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1989-91 United States Savings & Loan crisis
1990s Japanese asset price bubble collapsed
1992-93 Black Wednesday speculative attacks on currencies in
the European Exchange Rate Mechanism
1994-95 1994 economic crisis in Mexico speculative attack and default
on Mexican debt
1997-98 1997 Asian Financial Crisis devaluations and banking crises
across Asia
2001 - dot-com bubble - speculations concerning internet company's
crashed
2007-09 The financial crisis of 20072009 created the late 2000s
recession
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Countries in economic recession..
Estonia
Latvia
Ireland
New Zealand
Japan
Hong Kong
Singapore
Italy
Russia
Germany
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First Quarter 2008:Denmark went into recession
Second Quarter 2008:Estonia
Latvia
Ireland
New Zealand
Third Quarter 2008:Japan
Sweden
Hong Kong
Singapore
Italy
Turkey
Germany
Fourth Quarter of 2008:United States
Switzerland
Spain
Taiwan
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Crisis became International
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Causes of Financial Crisis
Subprime mortgage crisis.
Bubble
High Oil Prices.
Inflation, the silent killer.
Liquidity crisis.
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Subprime
Subprime could be referred to a security for
which a return above the prime rate is
adhered..
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Structure of a BubbleDisplacement (diffusion of new technology starts)
Take off(stock prices show abnormal increase)
Exuberance(stock prices grow at very high rate)
Critical Stage(stock price growth slows down)
Crash(stock prices start tumbling)
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Historic Bubbles
Dutch Tulip Mania (1630s)
South Sea Bubble (1710s)
British Railway Bubble (1840s)
US Railway Bubble (1880s)
Roaring Twenties (1920s)
Multi Bubble (1960s)
Internet Bubble (1990s)
Housing Bubble(2000s)
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Impact of U.S Recession in India
Indian industry recorded negative growth.
-falling to .4% against 12.2% a year ago.
Around 12% dip in Indias Export. Intermediate goods(producer goods)
contracted to 3.7% from growth of 13.9%.
Consumer goods contracted to 2.3% fromgrowth of 13.7%.
-Consumer durables shrank by 3%.
-Consumer non durables shrank by 2%.
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U.S Trade With India
Month Export(million US$) Import(million US$) Balance(millionUS$)
January,2008 1078.4 2,306.7 -1,228.3
February,2008 1,505.5 2,118.5 -613.0
March,2008 1,644.7 2,254.7 -610.0
April,2008 1,105.3 2,125.8 -1,020.4
May,2008 1,493.5 2,190.3 -696.6
June,2008 2,047.3 1,869.2 178.1
July,2008 1,986.6 2,069.7 -83.1
August,2008 1,864.4 2,210.6 -346.2
Source:Press Search
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TOP TEN COUNTRIES WITH WHICH
U.S. HAS A TRADE DEFICIT
Country Name
China
JapanCanada
Mexico
Saudi Arabia
Germany
Ireland
VenezuelaNigeria
Italy
Deficit in Millions($U.S)
Year (2006)
-27,956.65
-6,046.85-5,956.50
-4,804.47
-4,069.64
-3,368.14
-2,795.35
-2,660.30-2,631.80
-1,756.64
Deficit in Millions($U.S)
Year(2008)
-223,395.84
-62,426.73-68,513.41
-56,781.12
-39,797.27
-36,812.72
-18,858.10
-36,298.91-31,422.79
-17,712.29
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Effects of financial crisis
StockMarket
Real estate
Indias Exports
Rupee value
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Not only thisbut !!
A crisis of poverty for much of humanity
Poor nations will get less financing for
development A crisis so severe, the world financial system is
affected
A
crisis so severe, those responsible are bailedout
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We could avoid the financial CRISIS
by
Quoting Stiglitz :
We had become accustomed to the
hypocrisy. The banks reject any suggestion they
should face regulation, rebuff any move towards
anti-trust measures yet when trouble strikes, all of
a sudden they demand state intervention: they must
be bailed out; they are too big, too important to be
allowed to fail.
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THUS..
The fruit of hypocrisy; Dishonesty in
the finance sector dragged us here and
Washington looks ill-equipped to guide us out
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Impact on different Sectors in India
IT Enabled Services sector got hit.
Manufacturing sector has to ramp up scale
economies. Tourism sector got affected.
loss of some jobs in India.
Exporters are pushing for governmentintervention.
GDP growth rate came down.
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List of Events
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Recovery Plan for India
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Indicator Period 2007-08 2008-09
Growth, per cent
Real GDP Growth April-December 9.0 6.9
Industrial
production
April-February 8.8 2.8
Services April-December 10.5 9.7
Exports April-March 28.4 6.4
Imports April-March 40.2 17.9
GFD/GDP April-March 2.7 6.0
Stock Market
(BSE Sensex)
April-March 16,569 12,366
Rs.per US$ April-March 40.24 45.92
Macro Key Indicators in India
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How to Overcome???
Governments in Market economies do not have direct control on
Producers &the consumers behavior; But, they can influence millions of
producers & consumers with Governments policies.
Government has 2 policy
instrument
Fiscal Policy
By Govt.
Monetary
Policy
By RBI.
Government influence the
economy by changing the
governments spend & collect
money
Central banks manipulate the
available supply of money in the
country
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How to come out of Recession?
FiscalPolicies
Government influence the economy bychanging the governments spend & collect
money
Tax cuts for
business or for
individuals
More spending
by govt. to create
jobs.
Automatic Fiscal
policy;
Unemployment
insurance
More money
available for
spending
Individuals get
salary & spend
money
Some income to
unemployed
peopole to spend
Demand Picks up;
Market can
recover
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How to come out of Recession?
Monetary
Policy
Reduce reserveratio
Lower the
interest rates
Use its
reserved
money to buy
Govt. bonds
More money
available forbank to give
loan
Individuals take
more loans
It becomes an
income to inject
money into the
market
Central banks manipulate the available supply of
money in the country
Demand Picks up;
Market can recover
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Precautions taken by Government
HLCCFM is readying a financial paper:
The high-level co-ordination committee on financial markets
(HLCCFM) which has representation from all financialregulators and finance secretary, is readying a paper that will
outline the mechanism to ensure financial stability in the
country. The paper is expected to be ready in 2 months. The
HLCCFM is chaired by RBI governor.
Source: The Economic Times.
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Precautions taken by Government
HLCCFM is readying a financial paper:
The high-level co-ordination committee on financial markets
(HLCCFM) which has representation from all financialregulators and finance secretary, is readying a paper that will
outline the mechanism to ensure financial stability in the
country. The paper is expected to be ready in 2 months. The
HLCCFM is chaired by RBI governor.
Source: The Economic Times.
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Current Economic Scenario Of
Indian Economy1)Private consumption growth has picked up at5.6% in the quarter
against the the dismal 1.6% in the Previous quarter.
2)Pick up in investments.3)Growth forecast for 2009-10 likely to be hiked to over 7%.
Source: The Economic Times
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Quarterly GDP growth by Industry
(YoY%)
Sector Q1 Q2 Q3 Q4 Q1 Q2
Agriculture and allied activities 3.2 2.8 -0.4 2.6 2.9 1.9
Agriculture 3 2.7 -0.8 2.7 2.4 0.94
Mining & Quarrying 4.6 3.7 4.9 1.6 7.9 9.5
Industry 6.1 6.3 2.1 1.4 4.8 8.2
Manufacturing 5.5 5.1 0.9 -1.4 3.4 9.2
Electricity, Gas & Water Supply 2.7 3.8 3.5 3.6 6.2 7.4
Construction 8.4 9.6 4.2 6.8 7.1 6.5
Services 10.2 9.8 10.2 8.6 7.8 9.3
Trade, hotels, transport & com. 13 12.1 5.9 6.3 8.1 8.5
Financing, insurance 6.9 6.4 8.3 9.5 8.1 7.7
Community, social & personal 8.2 9 22.5 12.5 6.8 12.7
GDP at factor cost 7.8 7.7 5.8 5.8 6.1 7.9
FY-2009 FY-2010
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In words of our Finance Minister
p1.doc
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THANK YOU!!!
RAMITNAIN (IB/44)