Effect Of Recession On India
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Transcript of Effect Of Recession On India
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..