Impact on India

Mayank Sharma (91031)M. Faraz Khan (91033)Mudita Maheshwari

(91034)Naveen Yadav (91035)

Neha Arya (91036)

Global meltdown

• Global investor wealth• Jobs and spending• Loss of output• Implications• The IMF estimates

Impact on India

• Initially Insulated

• Not forever

Source: Global Financial Crisis: Causes, Impact, Policy Responses and Lessons, Rakesh Mohan, RBI Speech Abstract, April 23, 2009

Financial Sector

• Indian financial was protected, because of its robust fundamentals.

• Not even a single bank failed in India.• RBI had not allowed total capital convertibility,

that helped us

Impact on Stock market: Business World27 November 07, 2009

Impact on Exchange rateSource: advfn.com

Impact of Recession on Inflation

Source: Global Financial Crisis: Causes, Impact, Policy Responses and Lessons,Dr Rakesh Mohan, RBI Speech Abstract, April 23, 2009

. Impact on Foreign Exchange Reserve

• FII• current account deficit• depletion of foreign exchange reserve • depreciation of rupee

Exports have fallen to $ 12.8 billion in October 2008 from $ 14.8 billion in October 2007.there is a

60% trade deficit

Reasons for rise in forex reserves Why forex reserves have fallen after june 2008?

Huge FII inflow in 2007 because of good sentiments in the markets

So there was huge supply of dollar in the indian markets

This led to weakning of dollar and appreciation of domestic currency(rupee)

When rupee apreciates then export oriented companies have to incur big losses

RBI intervenes and purchases dollar by selling rupee which leads to increase in forex reserves and also

stablise the currency rates

Huge FII outflow because US and many European countries were under the grip of recession. so there was pessimism

everywhere.

so there was crunch of dollar which lead to increase in demand of dollar

domestic currency(rupee) weakens and dollar appreciates. rupee was depreciated upto 52 rs per dollar

RBI intervenes and started purchasing rupee by selling dollar in the currency market. RBI intervenes to control currency

fluctuation

this has to lead to fall in forex reserves gradually to avoid huge depreciation of rupee

Analysis and Recommendation

91%

6%2% 1%

Forex reserves in bn dollar

(a) Foreign Currency Assets +(b) Gold $(c) SDRs @(d) Reserve Position in the IMF**

Significant changes in foreign currency assets .

GOLD

Diversification

Diversification of Forex reserves

Overdependence on dollar

RBI’s action plan

Forecasting

• Growth rate for a ‘X’ year = Volume for yr ‘X’ Volume for yr ‘X-1’

• Average Growth rate = ∑(growth rate over the years) No. of years

• Forecasted volume for yr 2008-09 = Volume for yr 2007-08 * Avg. Growth rate

Forecasted data

PORTActual Imports

(‘000 tones)Forecasted Imports

(‘000 tones)Actual Exports

(‘000 tones)Forecasted Exports

(‘000 tones)

CALCUTTA 5793 6161 2592 3844

HALDIA 29231 31131 11731 16465

PARADIP 17233 16086 16982 24577

VISAKHAPATNAM

2542128948

2103228549

CHENNAI 31845 35206 13952 23269

TUTICORIN 13562 17108 3517 4180

COCHIN 10839 11377 3174 3345

NEWMANGALORE

2267523196

1526519341

MORMUGAO 126241 137044 23829 27424

MUMBAI 27023 28142 12348 14101

JNPT 29326 26824 17932 19484

ENNORE 5342 5253 129 176

KANDLA 39873 41800 8611 11749TOTAL 384404 408274 151094 196505

Source of data: www.ipa.nic.in (website of Indian ports association)

Forecasted data

1994-95

1995-96

1996-97

1997-98

1998-1999

1999-2000

2000-2001

2001-2002

2002-2003

2003-2004

2004-2005

2005-2006

2006-2007

2007-2008

2008-20090

50000

100000

150000

200000

250000

300000

350000

400000

450000

1994-95

1995-96

1996-97

1997-98

1998-1999

1999-2000

2000-2001

2001-2002

2002-2003

2003-2004

2004-2005

2005-2006

2006-2007

2007-2008

2008-20090

50000

100000

150000

200000

250000

Imports ExportsData Source: www.ipa.nic.in (website of Indian ports association)

Impact on GDP

Source: http://www.marketoracle.co.uk/images/2009/Dec/India-gdp.png

. In the first two quarters of 2008- 09, the growth in GDP was 7.8 and 7.7 per cent respectively

The third quarter witnessed a sharp fall in the growth of manufacturing, construction, trade, hotels and restaurants.

The growth fell to 5.8 per cent in the third and in the fourth quarters of 2008-09

Case of the Indian Jewel Industry

• In 2008-09 the industry accounted for 19.1 per cent of the total Indian exports, to the tune of US $21.11 billion.

• No diamond mines exist in India today.• the rough stone (raw material) has to be entirely

procured as imports.• the polished diamond is exported across the world,

USA being the major consumer.

Of the world’s total export of cut and polished diamonds, the Indian diamond cutting and polishing industry accounts for 95 per cent

share in terms of pieces, 80 per cent share in terms of caratage, and 57 per cent in terms of

value; 11 out of every 12 diamonds set in jewellery worldwide are cut and polished in India, 90 per cent of the work being done in

Surat (Source : GJEPC).

Effect of recession …

• Thousands of such units in Gujarat, India, which cut and polished diamonds mainly for export, had shut down.

• “Diamond had become as good as stone,” said a middle-aged artisan

“Around 6 lakh people lost their jobs from October 2008, following the impact of recession and most of them were

from Surat’s diamond and jewellery industry. About 500,000 people lost their jobs in the October-December

2008 period, while over 100,000 were shed in January this year.” The Economic Survey presented in the Indian

Parliament on July 3, 2009, reported

Outlook for India

• Easing out of inflation• Global crude prices and naphtha prices• Current account deficit

“When the winds of change blow, some people build shelters, and some build windmills.” – Chinese proverb

Conclusion• In 2008 the RBI reduced the CRR, from 5.5% to 5.0%, it also

reduced SLR, from 25% to 24%• To lift the economy out of the recession the Government

announced a package of Rs 35,000 crores in the first instance on December 7, 2008

• The combined net market borrowings of the Central and State Governments in 2008-09 were nearly two and half times their net borrowings in 2007-08

• The flow of foreign exchange deposits in 2008-09 by non-resident Indians to banks has risen by almost 22 times over the previous year to $3.99 billion

India is one of the countries who are least affected by the global meltdown, but still some effect was

necessarily made because we cannot be immune from it as so many things depends on international

trade export and import

Any Questions..