Beruflich Dokumente
Kultur Dokumente
.6
Current Account Balance
(CAB)7
Annexure
..17
Time lines: Euro zone
crisis17
2007
2008
2009
2010
2011
2012
Japan
1.7
2.2
-1.0
-5.5
4.4
-0.7
2.0
United Kingdom
2.6
3.5
-1.1
-4.4
2.1
0.7
0.8
United States
2.7
1.9
-0.3
-3.5
3.0
1.7
2.1
Austria
3.7
3.7
1.4
-3.8
2.3
3.1
0.9
Belgium
2.7
2.9
1.0
-2.8
2.3
1.9
0.0
Cyprus
4.1
5.1
3.6
-1.9
1.1
0.5
-1.2
Estonia
10.1
7.5
-3.7
-14.3
2.3
7.6
2.0
Finland
4.4
5.3
0.3
-8.4
3.7
2.9
0.6
France
2.7
2.2
-0.2
-2.6
1.4
1.7
0.5
Germany
3.9
3.4
0.8
-5.1
3.6
3.1
0.6
Greece
4.6
3.0
-0.1
-3.3
-3.5
-6.9
-4.7
Ireland
5.3
5.2
-3.0
-7.0
-0.4
0.7
0.5
Italy
2.2
1.7
-1.2
-5.5
1.8
0.4
-1.9
Luxembourg
5.0
6.6
0.8
-5.3
2.7
1.0
-0.2
Malta
2.9
4.3
4.1
-2.7
2.3
2.1
1.2
Netherlands
3.4
3.9
1.8
-3.5
1.6
1.3
-0.5
Portugal
1.4
2.4
0.0
-2.9
1.4
-1.5
-3.3
Slovak Republic
8.3
10.5
5.8
-4.9
4.2
3.3
2.4
Slovenia
5.9
6.9
3.6
-8.0
1.4
-0.2
-1.0
Spain
4.1
3.5
0.9
-3.7
-0.1
0.7
-1.8
Advanced economies
3.0
2.8
0.0
-3.6
3.2
1.6
1.4
Euro area
3.3
3.0
0.4
-4.3
1.9
1.4
-0.3
European Union
3.6
3.4
0.5
-4.2
2.0
1.6
0.0
Developing Asia
10.3
11.4
7.8
7.1
9.7
7.8
7.3
ASEAN-5
5.7
6.3
4.8
1.7
7.0
4.5
5.4
5.7
5.8
4.2
-1.6
6.2
4.5
3.7
6.1
5.6
4.7
2.7
4.9
3.5
4.2
Brazil
4.0
6.1
5.2
-0.3
7.5
2.7
3.0
China
12.7
14.2
9.6
9.2
10.4
9.2
8.2
India
9.5
10.0
6.2
6.6
10.6
7.2
6.9
Indonesia
5.5
6.3
6.0
4.6
6.2
6.5
6.1
Russia
8.2
8.5
5.2
-7.8
4.3
4.3
4.0
South Africa
5.6
5.5
3.6
-1.5
2.9
3.1
2.7
Turkey
6.9
4.7
0.7
-4.8
9.0
8.5
2.3
Source: International Monetary Fund, World Economic Outlook Database, April 2012
Note: 2011 Figures for Cyprus, Greece, Malta, Portugal, Spain are IMF
projection
Figures from 2012 onwards are IMF
projection
However, in todays globally integrated world, it is highly uncertain as to whether the developing
countries would be able to sustain their growth momentums. This is because as the GDP in the
developed nations along with the Euro Zone declines even further, the exports to these countries is
bound to get affected adversely. Moreover, the financial economy in the developing countries will also
be impacted as Capital Flows (FDI & FIIs) might see a slowdown due to the gloomy global
conditions.
Debt to GDP ratio
Growing Debt has been a major reason for the current crises that most of the European nations find
themselves in. Although, some amount of debt shall always have to be borne upon to induce growth
in the economy however it is the continued overdependence on borrowings that are bound to have dire
consequences and dilute the fiscal positions of the government. Specifically talking about the PIIGS
(Portugal, Ireland, Italy, Greece, and Spain) nations we see that their debt levels were so high that it
became almost impossible for them to repay their loans, and thus most of them approached either the
other better placed European partners or the International Monetary Fund for loans in order to
sustain themselves.
Furthermore, as seen in the previous section the slowing down of the economic growth in these
countries is going to further have repercussions on the financial stability of the region. As slowdown
in growth would invariably lead to lower tax revenue being generated thereby hampering the
governments repaying capacity.
As seen from the data the general government debt as percentage of GDP in case of Greece, Ireland,
Italy, and Portugal has been more than 100 per cent in the year 2011. In fact in case of both Greece
and Italy this has been the case ever since 2008. The high interest on government debt of these
countries almost triggered off a virtual bankruptcy. Such huge and unsustainable sovereign debts
resulted in a sovereign debt crisis in Euro zone. Refer table 2 for data on debt to GDP ratio.
Table 2
General government gross debt as % of GDP
Country
2008
2009
2010
2011
2012
2013
Japan
191.8
210.2
215.3
229.8
235.8
241.1
United Kingdom
52.5
68.4
75.1
82.5
88.4
91.4
United States
76.1
89.9
98.5
102.9
106.6
110.2
Austria
63.8
69.5
71.8
72.2
73.9
74.3
Belgium
89.3
95.9
96.2
98.5
99.1
98.5
Cyprus
48.6
58.3
61.3
71.8
74.3
75.2
Estonia
4.5
7.2
6.7
6.0
5.7
5.4
Finland
33.9
43.5
48.4
48.6
51.6
52.8
France
68.3
79.0
82.4
86.3
89.0
90.8
Germany
66.7
74.4
83.2
81.5
78.9
77.4
Greece
110.7
127.1
142.8
160.8
153.2
160.9
Ireland
44.2
65.2
92.5
105.0
113.1
117.7
Italy
105.8
116.1
118.7
120.1
123.4
123.8
Luxembourg
13.7
14.8
19.1
20.8
23.8
26.8
Malta
62.3
68.0
69.4
70.9
71.4
70.7
Netherlands
58.5
60.8
62.9
66.2
70.1
73.7
Portugal
71.6
83.1
93.4
106.8
112.4
115.3
Slovak Republic
27.9
35.6
41.1
44.6
47.1
48.8
Slovenia
21.9
35.3
38.8
47.3
52.5
55.9
Spain
40.2
53.9
61.2
68.5
79.0
84.0
Source: International Monetary Fund, World Economic Outlook Database, April 2012
Note: 2011 Figures for Cyprus, Greece, Malta, Portugal, Spain are IMF projection
Figures from 2012 onwards are IMF
projection
2008
2009
2010
2011
2012
2013
Japan
3.2
2.8
3.6
2.0
2.2
2.7
United Kingdom
-1.4
-1.5
-3.3
-1.9
-1.7
-1.1
United States
-4.7
-2.7
-3.2
-3.1
-3.3
-3.1
Austria
4.9
2.7
3.0
1.2
1.4
1.4
Belgium
-1.6
-1.7
1.5
-0.1
-0.3
0.4
Cyprus
-15.6
-10.7
-9.9
-8.5
-6.2
-6.3
Estonia
-9.7
3.7
3.6
3.2
0.9
-0.3
Finland
2.6
1.8
1.4
-0.7
-1.0
-0.3
France
-1.7
-1.5
-1.7
-2.2
-1.9
-1.5
Germany
6.2
5.9
6.1
5.7
5.2
4.9
Greece
-14.7
-11.0
-10.0
-9.7
-7.4
-6.6
Ireland
-5.7
-2.9
0.5
0.1
1.0
1.7
Italy
-2.9
-2.1
-3.5
-3.2
-2.2
-1.5
Luxembourg
5.1
6.5
7.7
6.9
5.7
5.6
Malta
-5.3
-8.3
-6.4
-3.2
-3.0
-2.9
Netherlands
4.3
4.2
6.6
7.5
8.2
7.8
Portugal
-12.6
-10.9
-10.0
-6.4
-4.2
-3.5
Slovak Republic
-6.6
-3.2
-3.5
0.1
-0.4
-0.4
Slovenia
-6.9
-1.3
-0.8
-1.1
0.0
-0.3
Spain
-9.6
-5.2
-4.6
-3.7
-2.1
-1.7
Source: International Monetary Fund, World Economic Outlook Database, April 2012
Note: 2011 Figures for Cyprus, Greece, Malta, Portugal, Spain are IMF projection
Figures from 2012 onwards are IMF
projection
IMF projection
From the graph given above it is amply clear that growth in these developed countries has not been
consistent with the more recent years seeing a deceleration in growth. Indias exports are driven by
growth in the global markets. And if we look at the share in Indias global exports of some of these
countries and other nations facing economic uncertainty, then we see this figure trending down
indicating that the erstwhile growth markets for our exports are somewhat loosing their importance.
See table 4 for details on this last point.
Graph 2 indicates that the euro areas economic growth rate was in negative in 2012 and declining at a
very fast rate. Since 2008 the European economies have been seeing a weakening of the growth
momentum and now again some of these countries are on the brink of a recession.
Graph 2
Growth rate of PIIGS economies (Percent)
The 27 EU countries have a share of 18.6 percent in Indias exports and it is the second largest
destination for our exports. The euro areas instability had been negatively reflected in Indias exports
to the euro region.
The share of EU countries in Indias total exports has declined from 20.2 percent in 2009-10 to 18.6
percent in 2010-11 on account of the sovereign debt crisis in major economies of this region. If we
look at our exports to the PIIGS countries, then we see that the share of these countries in Indias
overall exports has declined with time. See table 4 for details.
Now look at the growth performance of the BRICS partner countries over the last few years. Here we
see that growth in these countries too has decelerated but the extent of slowdown is much less than
what is seen in case of some of the developed countries including those in the EU region.
10
Graph 3
Growth rate of BRICS partners economies (Percent)
projection
Table 4
Composition of Indias exports: Share of major trading partners
2004-05
2005-06
2006-07
2007-08
2008-09
Developed Economies
14.92
12.71
USA
16.48
16.83
UK
4.41
4.91
4.45
Japan
2.55
2.41
2.27
Germany
3.38
3.48
Portugal
0.27
0.25
0.29
Spain
1.66
1.56
Italy
France
2.74
2009-10
2010-11
20112012(AprSep)
11.41
10.93
10.17
11.18
4.11
3.59
3.48
2.84
2.82
2.37
1.63
2.03
2.07
1.81
3.45
3.03
2.69
2.69
0.30
0.24
0.21
0.21
0.19
1.49
1.41
1.37
1.14
1.02
0.98
2.44
2.84
2.40
2.06
1.90
1.81
1.72
2.01
2.02
1.66
1.59
1.63
2.14
2.02
1.34
Netherland
1.92
2.40
2.12
3.22
3.43
3.58
3.09
2.83
Ireland
Greece
0.25
0.27
0.18
0.19
0.24
0.15
0.11
0.11
0.37
0.55
0.53
0.33
0.47
0.25
0.14
0.25
21.85
22.53
21.23
21.17
21.24
20.16
18.64
17.13
Brazil
0.81
1.06
BRICS Partners
1.15
1.55
1.43
1.35
1.58
1.87
Russia
0.76
0.71
0.71
0.58
0.59
0.55
0.63
0.55
China
6.72
6.56
6.58
6.66
5.05
6.50
7.81
5.15
EU Countries
(27)
European Countries
3.15
3.14
11
South Africa
1.18
1.48
1.77
1.63
1.07
1.15
1.59
1.45
Source: Ministry of
Commerce, Govt. of India
Beginning fiscal 2009-10, market sentiments started improving and FIIs were seen to return back to
the Indian markets. In the months following March 2010, India emerged as one of the better
performing markets globally and this was support by our own good economic performance as well as
improvement seen in some parts of the developed world. FII flows into India were robust through the
period April to September 2010. And this trend was accompanied by an improvement in the market
performance. On one hand the sensex rose and on the other hand we saw the value of the Indian
Rupee gaining strength against the $.
12
The year 2010-11 saw a similar trend developing. FIIs pumped in sizable amounts in the Indian
market barring the months of May and February when there was a net outflow of funds. This was a
sign of confidence amongst foreign investors with regard to the growth prospects for the Indian
market. This was also a period when the sensex saw some improvement in its level.
While 2009-10 and 2010-11 proved to be good from the point of view of foreign investment inflows,
things changed quiet a bit in 2011-12. As the crisis in the Euro zone intensified, FIIs once again came
under pressure and started withdrawing from emerging markets including India. This movement
13
(which paralleled trends we saw in 2008-09) led to a decline in the Sensex as well as loss in value of
the INR against the $.
Source:
FII has been taken from SEBI
Sensex
data taken from BSE website
The data given in the table below and the graphs based on this set of numbers show that there is a
clear link or rather a strong relation between FII flows and movement in the BSE Sensex. Both in
2008-09 and in 2011-12, which were periods of widespread uncertainty and pessimism in most of the
developed countries across the world, we witnessed a slowdown (and on most occasions a
withdrawal) of FII flows into the country. And this had a direct bearing on the movement in the
Sensex, which went down every time FIIs pulled money out of India. Likewise there exists a relation
between FII flows and movement in the exchange rate. Whenever FIIs have pulled money out of the
Indian market, the INR has lost its value and depreciated against the $.
Table 5
FII flows, Sensex and Exchange Rate
FII
2008-09
Direct Impact
Sensex
Exchange Rate
April
-627
15,772
40.0
May
-5,174
17,560
42.1
Jun
-11,095
16,591
42.8
July
1,782
13,480
42.8
Aug
46
14,064
42.9
14
2009-10
2010-11
2011-12
Sep
-5,074
14,413
45.6
Oct
-17,205
13,007
48.7
Nov
1,617
10,209
49.0
Dec
2,377
9,163
48.6
Jan
-3,443
9,721
48.8
Feb
-3,124
9,340
49.3
Mar
-5,890
8,763
51.2
April
8,999
9,746
50.1
May
17,406
11,635
48.5
Jun
4,898
14,747
47.8
July
13,182
14,506
48.5
Aug
4,523
15,695
48.3
Sep
20,573
15,691
48.4
Oct
15,973
17,186
46.7
Nov
6,181
15,839
46.6
Dec
8,711
16,947
46.6
Jan
8,413
17,473
46.0
Feb
4,363
16,339
46.3
Mar
29,438
16,438
45.5
April
12,393
17,555
44.5
May
-6,986
17,537
45.8
Jun
11,249
16,943
46.6
July
24,724
17,679
46.8
Aug
14,686
17,911
46.6
Sep
32,668
18,027
46.1
Oct
24,303
20,094
44.4
Nov
21,211
20,272
45.0
Dec
3,214
19,530
45.2
Jan
5,364
20,622
45.4
Feb
-3,270
18,425
45.4
Mar
6,883
17,982
45.0
April
7,196
19,463
44.4
May
-4,276
19,224
44.9
Jun
4,883
18,527
44.8
July
10,653
18,975
44.4
Aug
-7,903
18,352
45.4
Sep
-1,866
16,964
47.7
Oct
3,079
16,256
49.3
Nov
-3,263
17,541
50.8
Dec
21,873
16,556
52.5
Jan
26,329
15,535
51.2
Feb
35,228
17,180
49.2
15
2012-13
Mar
1,793
17,715
50.4
April
-4,897
17,430
51.8
May
17,371
53.4
Jun
16,217
55.5
Recently we have seen that the RBI in consultation with the government has announced a series of
measures to open up the capital account further. These measures which include steps like increasing
the investment limit in the government bond market, making terms for availing and use of ECBs by
corporates a little more flexible, expanding the list of potential investors in the G-SEC market are
encouraging and have been taken with the view to encourage more capital flows into the country and
to prop up the sliding Rupee.
However, reactions from an array of stakeholders show that these measures would be of limited use
unless they are backed by key structural reforms that have a bearing on the overall investment
environment. These policy changes have not resulted in any fresh and sizable flows and this is a sign
of lack of confidence in the investor community with regard to Indias economic environment and its
growth prospects in the near term.
Our large and growing fiscal deficit as well as current account deficit is having a bearing on the
exchange rate. This is also affecting our credit rating with many large sovereign rating agencies issuing
a warning to that affect. This has led to an increase in the interest rates that are being charged to or
asked from Indian borrowers in the international market and hence any move to encourage ECBs
would see its impact getting diluted due to this factor.
It may be noted that FDI or direct investment is of a more durable variety. FDI inflows into the
country do not get too influenced by volatility in the global financial markets. We have seen this as
during periods of stress in the recent past, FDI flows have remained robust with only occasional dips.
The policy makers must therefore make an effort to promote such inflows to stem the continuing
weakness of the Indian Rupee. Alternatively they can consider bringing the current account and the
trade deficit under control by extending price decontrol measures to products like diesel, further
discouraging imports of gold and promoting the domestic capital goods sector.
16
Annexure
Time lines: Euro zone crisis
2008
2009
2010
2011
In April, the EU orders France, Spain, the Irish Republic and Greece to reduce their budget
deficits
In December, Greece admits that its debts have reached 300bn euros
Greece is burdened with debt amounting to 113% of GDP - nearly double the Euro zone limit
of 60%. Ratings agencies start to downgrade Greek bank and government debt.
In February, Greece unveils a series of austerity measures aimed at curbing the deficit.
On 11 February, the EU promises to act over Greek debts and tells Greece to make further
spending cuts.
The Euro zone and IMF agree a safety net of 22bn euros to help Greece
The EU announces that the Greek deficit is even worse than thought after reviewing its
accounts - 13.6% of GDP, not 12.7%.
2 May, the Euro zone members and the IMF agree a 110bn-euro bailout package to rescue
Greece.
In November, the EU and IMF agree to a bailout package to the Irish Republic totaling 85bn
euros.
In February, Euro zone finance ministers set up a permanent bailout fund, called the European
Stability Mechanism, worth about 500bn euros.
In April, Portugal admits it cannot deal with its finances itself and asks the EU for help.
In May, the Euro zone and the IMF approve a 78bn-euro bailout for Portugal.
In July, the Greek parliament votes in favour of a fresh round of drastic austerity measures,
the EU approves the latest tranche of the Greek loan, worth 12bn euros.
In August, European Commission President Jose Manuel Barroso warns that the sovereign
debt crisis is spreading beyond the periphery of the Euro zone.
On 7 August, the European Central Bank says it will buy Italian and Spanish government
bonds to try to bring down their borrowing costs, as concern grows that the debt crisis may
spread to the larger economies of Italy and Spain.
Italy passes a 50bn-euro austerity budget to balance the budget by 2013 after weeks of
haggling in parliament.
On 4 October, Euro zone finance ministers delay a decision on giving Greece its next
installment of bailout cash, sending European shares down sharply.
17
2012
On 6 October the Bank of England injects a further 75bn into the UK economy through
quantitative easing, while the European Central Bank unveils emergency loans measures to
help banks.
On 14 October G20 finance ministers meet in Paris to continue efforts to find a solution to the
debt crisis in the Euro zone.
On 21 October Euro zone finance ministers approve the next, 8bn euro ($11bn; 7bn), tranche
of Greek bailout loans, potentially saving the country from default.
On 26 October European leaders reach a "three-pronged" agreement described as vital to solve
the region's huge debt crisis.
On 13 January, credit rating agency Standard & Poor's downgrades France and eight other
Euro zone countries, blaming the failure of Euro zone leaders to deal with the debt crisis.
On 12 February, Greece passes the unpopular austerity bill in parliament - two months before
a general election.
On February 22, a Markit survey reports that the Euro zone service sector has shrunk
unexpectedly, raising fears of a recession.
March begins with the news that the Euro zone jobless rate has hit a new high.
On 13 March, the Euro zone finally backs a second Greek bailout of 130bn euros.
On 12 April, Italian borrowing costs increase in a sign of fresh concerns among investors about
the country's ability to reduce its high levels of debt.
On 25 May, Spain's fourth largest bank, Bankia, says it has asked the government for a bailout
worth 19bn euros ($24bn; 15bn).
On 9 June, after emergency talks Spain's Economy Minister Luis de Guindos says that the
country will shortly make a formal request for up to 100bn euros ($125bn; 80bn) in loans
from Euro zone funds to try to help shore up its banks.
On 12 June, optimism over the bank bailout evaporates as Spain's borrowing costs rise to the
highest rate since the launch of the euro in 1999.
On 15 June, former UK Chancellor of the Exchequer Gordon Brown underlined fears of
contagion with a warning that France and Italy may need a bailout.
On 17 June, Greeks went to the polls, with the pro-austerity party New Democracy getting
most votes., allaying fears the country was about to leave the Euro zone.
18