Impact Of Global Recession On Indian Corporate Sector IMPACT OF GLOBAL RECESSION ON INDIAN CORPORATE SECTOR Synopsis Submitted To DRAVIDIAN

UNIVERSITY in partial fulfillment for the award of the degree of DOCTOR OF PHILOSOPHY IN MANAGEMENT Submitted by M.K.SENTHIL KUMAR [Reg. No. 02109222001] Under the Supervision of Dr. L.J. SOUNDAR RAJAN, Professor and Head, Dept. Of Management Studies, Christ College of Engineering & Technology, Moolakulam, Puducherry 605 010 SCHOOL OF DISTANCE & OFF-CAMPUS EDUCATION DRAVIDIAN UNIVERSITY Srinivasavanam, KUPPAM INDIA 517 425 2009 Synopsis IMPACT OF GLOBAL RECESSION ON INDIAN CORPORATE SECTOR (A synopsis submitted to DRAVIDIAN UNIVERSITY in partial fulfillment for the award of the Degree of Doctor of Philosophy in Management) This Synopsis consists of several chapters, Chapter I is to talk about introduction, Global Recession, Definition, Historical Background, Significance Is this Essay helpful? Join OPPapers to read more and access more than 350,000 just like it! GET BETTER GRADES of the topic, Relevance of the topic for the corporate world and Plan of research. Chapter II is about literature review, Various Journals, Books, and Articles etc., are referred talking about recession. The yardstick to measure the impact includes output, Import, Exports, Attrition, Job Cuts, and Production Cost etc. Global Recession has impacted negatively various industries. The industries which have been affected very drastically have been taken as samples.

In what areas the recession has affected the industries have been discussed. Chapter III is to devote its attention on Research Methodology of how about and where about the data is to be collected for analysis of the topic and to discusses the nature of the area covered for data collection. Hypothesis formulation and limitations of the scope of the study. Chapter IV is fully concentrated on Data Analysis part of the dissertation. Chapter V is to throw light on the findings of the study on the topic for the dissertation leading to the award of the Doctorate Degree. Chapter VI is to...

Impact Of Global Recession On Indian Market The recession in the US market and the global meltdown termed as Global recession have engulfed complete world ecomony with a varying degree of recessional impact. World over the impact has diversified and its impact can be observed from the very fact of falling Stock market, recession in jobs availiability and companies following downsizaing in the existing available staff and cutting down of the perks and salary corrections. Globally the financial sector sacking the existing base of employees in high numbers in US the major example being CITI Group same still followed by others in hospitality industry Jet and Kingfisher Airlines too. The cut in salary for the pilots being 90 % can any one imagine such a huge cut in salary. In the globalized market scenario, the impact of recession at one place/ indusrty/ sector perculate down to all the linked indusrty and this can be truly interpreated from the current market situation which is faced by the world since approx 2 month and still the situation is Is this Essay helpful? Join OPPapers to read more and access more than 350,000 just like it! GET BETTER GRADES not in control inspite of various measures taken to fight back the recession in the market.The badly hit setor at present being the financial sector, and major issue being the "LIQUIDITY Crises" in the market. In-spite of the various measures to subsidise the impact of the recession and cut down the inflation present nothing really sound have been done. Various steps taken by RBI to curb the present recession in the economy and counter act the prevailing situation. The sudden drying-up of capital inflows from the FDI which were invested in Indian stock markets for greater returns vizualizing the Potential Higher Returns flying back is continuing to

challenge liquidity management.At the heart of the current liquidity tightening is the balance of payments deficit, and this NRI deposit move should help in some small way. To curb the liquidity crises the RBI will continue to initiate liquidity measures as long as the current unusually tight domestic liquidity...

Impact Of Recession On Indian Economy Impact of Recession on Indian Economy

Table of Contents Reason for Recession to occur 2 Channel through which recession got transmitted to India from US 3 Effect of recession on different sectors 4 Impact on Indian Economy 6 Steps that government took to tackle recession 9 References: 11

Reason for Recession to occur What happened was this: banks were approached by thousands of possible new home owners asking for loans. This was during a period where the United States real estate market was climbing fast, and the value of homes was rising quickly. The banks approved these bad or subprime mortgages under the mentality that if the Is this Essay helpful? Join OPPapers to read more and access more than 350,000 just like it! GET BETTER GRADES new home owners were to foreclose, the property would have a higher value than what it originally was due to the climbing real estate market, meaning that the bank would not lose money but make a profit! What actually happened was that the real estate market crashed, and banks were out of pocket due to the massive numbers of foreclosures on mortgages occurring. This set off the global financial crisis, which led to a global economic downturn and the recession in most developed countries. All that because of some bad debts in the States! What went wrong? * Increasing pressure of inflation lead to higher interest rate. (Interest Rate cycle turned around middle of 2007) * As result cycle of taking loans and consumer spending practically stopped. * Demand for homes dropped due to rise in interest rates. People with low credit profile (to

whom sub-prime loans were given) came under pressure and started defaulting. * Housing prices came down (the basic calculation of mortgage players of increase in property prices went wrong) and mortgage players failed to provide cover for the mortgage loans when sub-prime borrowers started defaulting. * Easy liquidity gradually...

Impact Of Global Recession Global Recession - Causes and Impact Global economic recession is a well known term among the developed and already developing countries. It is actually a process which gradually forms a clear picture and not observed in a particular period of time where the economic conditions as well as other financial indicators of the nation confirms its existence such as growth in unemployment rate, low productivity, negative business expansion etc. The decade has observed such condition in later 2008 which influenced almost all major economies. To point out the major cause of global recession, its place of origin has to be mentioned ie. United States of America. Many reasons contributed to the birth and extension of the situation. Here the discussion is done on the main issues which led to the serious condition which shrunk the economic growth of nations. The causes can be indicated by mentioning the policy of USA which had applied low inflation rates in past two or more decades and as a Is this Essay helpful? Join OPPapers to read more and access more than 350,000 just like it! GET BETTER GRADES result experienced sustainable economic development. This further lead to fall in price of fixed assets such as real estate after a particular period of time. The economy also experienced excess inflow of foreign funds and low interest rates to raise credit which further was responsible for the growth of the problem. Further, the economy when showed the favourable signs led the investors to procure loans and reinvest in real estate. Soon as the condition turned adverse ie. hike in interest rates, the debts became the point of concern to the private banks and it turned as investment comprising risk to them which was hard to regain and such institutions played the major role in corporate profits of USA. Apart from these, many other reasons also contributed to worsen the situation like securitization, crash of stock market, high rate of interest, failure in balancing the money supply to the world economy, rise in inflation despite of money supply to the market, adverse effect on particular...

The Causes And Effects Of Global Recession. INTRODUCTION Here a definition a recession as well a global recession is mentioned. Some causes and effects has been listed. Due to recession occurring, I have identified the effects of recession based on Tesco. The causes and effects of global recession. Global financial crisis, increasing for a while, began to show its results in the mid of 2007 into 2008. Worldwide stock markets have subsided, financial institutions have dropped and governments in even the richest nations have had to develop packages to assist their financial organizations. Recession is defined as a slowdown of activities in the economy over a time. The major effect of recession is Inflation as well as currency crisis. A decrease in income may be another effect of recession in the economy. As persons try to save more, this reduces sales therefore there is a result of no profits. Another effect may be increase in mortgage rates. At the time of recession, lenders Is this Essay helpful? Join OPPapers to read more and access more than 350,000 just like it! GET BETTER GRADES tend to increase rate in order to cover their losses. While in recession employment occasions are reduced since companies tend to cut down on these opportunities thus leading to unemployment in the economy. Countries around the world are being driven into recession as the economic downturn deteriorates. In Europe, Germany, Italy, Ireland and Denmark they have all suffered two consecutive quarters of economic decline the first is the technical definition of a recession and secondly it was already present before. Japan joined the list as it surprised economists and reduced in size in the ending of the year. The UK economy shrank in the third quarter of 2008, and is expected to contract through most of 2009. Many are expecting a new world order with economic power shifting to countries in the east who are better placed to weather the downturn. However, developing economies rely on the west to buy their goods, so recessions in the US and UK will also hurt them. This was according to...

Review Of The Impact Of The Crisis On The Indian Economy - T Ram Mohan

[pic] The Impact of the crisis on the Indian Economy By Dr. T T Ram Mohan [pic] Article Review by Content Page 1. Objective 3 2. Group IV Analysis 4 3. Conclusion 12 4. References 13 Objective The article is aimed at a post-mortem explanation of the 2007-2009 financial crises in US economy in pre and post bankruptcy of Lehman Brothers and the impact analysis on Indian economy. The whole write-up is tuned towards the impact on the banking and financial industry. The effect has been severe than initially forecasted. The various cascading effects had deepened the whole situation. India has been less affected because of the various regulations well in place and adequate policy responses Group IV Analysis Is this Essay helpful? Join OPPapers to read more and access more than 350,000 just like it! GET BETTER GRADES Our analysis of the article is being divided in the same way as per the article by Dr. T T Rammohan as per its various sections. On US Economy Tried to explain the fall of Lehman Brothers and its effects on US economy. We have agreed with the explanations provided by the author. Though some of the economists felt that the failure of Lehman Brothers have actually saved the world from greater crisis. That idea is missing from the article by Dr. Rammohan.

On Emerging Economies Tried to explain the cascading effects of subprime effects on Emerging markets. Disagreed with what Dr. T T Rammohan wants to promote the decoupling effect with emerging economy. We have tried to show that the emerging economies were also affected might not be in the same way as US but similarly affected and responded to US markets in a similar way. On Indian Economy Tried to explain the why affects on the market and with the help of IS-LM model tried to explain the effect of the changes monetary and fiscal policies taken by Reserve Bank of India (RBI) and Government of India. We agree with what Dr. T T Rammohan says in his article. On...

Global Recession Synopsis Dissertation topic Study of impact of global recession on manufacturing and service sector in India. [pic] [pic] SUBMITTED TO: SUBMITTED BY: Roy SUNIL VISHWAKARMA ROLL NO.: IRM/04/32 SMS, VARANASI Mr. Shubhagata Sr. LECTURER

Is this Essay helpful? Join OPPapers to read more and access more than 350,000 just like it! GET BETTER GRADES PGDM-IRM 3rd SEM SCHOOL OF MANAGEMENT SCIENCEs VARANASI INTRODUCTION

The entire world is experiencing a tough period for the past 3 years thanks to the contagion namely Sub-Prime Lending [SPL]. All started well with banks operating in U.S. lending loans to the NINJA [No Income No Job and No Assets] customers at a subsidized/ lower rate of interest, hoping that the housing industry will continue to thrive in the future. Adding to this were the offshoot of derivative products such as Credit Default Swaps [CDS] which in turn provided confidence to the banks to lend money to the sub-prime borrowers as these derivative products got traded at huge volumes in markets operating across the world. But things started happening on the other way such that the big names such as Lehman Brothers, Merrill Lynch, Fannie Mae, Freddie Mac and American International Group [AIG] got collapsed. This triggered the global melt down and thereby the business entities operating across the world got affected very badly. Further the vicious cycle of lower demand leading to plant shut downs leading to job cuts made almost every industry to report falling growth rates in the top -line and bottom -line figures. Banks started showing reluctance to lend fresh loans to the business entities in order to avoid further losses. This also led to...

Impact On Indian Economy Impact of Recession on Indian Economy & Changes in Consumer Behaviour due to Recession IntroductionAlmost everybody today seems to be discussing about the US Recessionary trend and its impact on emerging countries, more particularly India Economists, Industrialists and the common man on the streets seem to have been horrified by the very thought of recession in India and that too due to US. Decreasing industrial production, inflation, decreasing job opportunities, cost cutting, reducing purchasing power parity, et al are the aspects discussed among them through every possible mode like articles, talks & walks and places like washrooms, canteens, etc But to me the reality is very different! Yes...... India will not be impacted largely by the US recession, simply because India is not which it was in the '80s-'90s.Although it will be immature on my part to say that India will not be impacted by the US recession at all, but the truth is that it will not get impacted adversely in the magnitude Is this Essay helpful? Join OPPapers to read more and access more than 350,000 just like it! GET BETTER GRADES

of what everyone feels. What is a recession? A drastic slowing of the economy. Where gross national or domestic product has fallen in two consecutive quarters. A recession would be indicated by a slowing of a nation's production, rising unemployment and falling interest rates, usually following a decline in the demand for money. A popular distinction between recession and depression is: 'Recession is when your neighbors lose his job; depression is when you lose yours. What causes it? An economy which grows over a period of time tends to slow down the growth as a part of the normal economic cycle. A recession normally takes place when consumers lose confidence in the growth of the economy and spend less. This leads to a decreased demand for goods and services, which in turn leads to a decrease in production, lay-offs and a sharp rise in unemployment. Investors spend less as they fear stocks values will fall and thus stock markets fall...

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Effect of The Global Meltdown on the Indian Economy BUSINESS | FEBRUARY 1, 2009 | SHARE

Whatever is going to happen, will happen; just dont let it happen to youThe year 2008, one of the worst years in the worlds economic history, experienced a major global meltdown. This global meltdown led to job lay-offs across the world. It claimed its first casualty in Los Angeles with a 45 year old NRI killing 5 members of his family before taking his own life. According to the Labor Departments report, the unemployment rolls swelled by 2.2 million, over the last year, to 9.5 million. Different Indian associates and CEOs of multinational companies have started feeling the heat. The recent downturn is weighing on the minds of employers. Although India has not been directly impacted by the global financial crisis, we should be cautious about the indirect knock-on effect of the global crisis. According to the GET report, over 50 million could lose their jobs by 2009 worldwide. The worst thing is that as we live in an agrarian economy where the unemployment rate is already high and 60% of the population is still dependent on agriculture, the rate of unemployment is rising further due to these worldwide lay-offs as most of the students of India go abroad for job purposes. Going further, not only the labor market, but also the financial market, IT/ITes, export and manufacturing sectors have been affected adversely. The IT/ITes sector is the major component of Indias growth because the share in GDP given by agriculture has been taken up by the services sector in recent past. The global meltdown is not only affecting the services sector, even the industrial sector has been affected adversely. Major projects and expansion plans are being reviewed by the corporate sector and they have started focusing on reducing costs and borrowings. The first half of the year 2009 is considered as the worst period. Despite all these problems, the biggest problem that still exists from the past is Information asymmetry. It would be fine if our Government or the members of the major corporate sector dont know the problem or where to

find the answer, but the truth is that they know both and are waiting for other countries to take steps. The most important challenge faced by our Government during this time is to ensure a balance between inflation and growth. If our economy experiences high growth rates, it will lead to major exports from our nation which will affect our domestic market and if economy experiences a decline in the inflation rate, it will lead to major imports to our country which will affect the government budget. Though the impact of global financial crisis on India is stronger than expected, it will be the first to recover if the Government takes correct decisions and changes the established fiscal and monetary policies. The wholesale price index and the consumer price index need to be watched. The Government should ensure continuous credit flow at a low rate of interest to the private sector and especially to small and medium enterprises for their expansion and the growth projects. Low rate of interest is not the only way of boosting the economic growth. Increase in government expenditure will stimulate the demand so that industry will produce which will effect the economic growth. The Government should also initiate measures to address the mutual funds and non-banking financial companies. They should also keep an eye on the market manipulators and the institutional speculators, as when most individual investors lose when the market falls, the institutional speculators make money when there are financial speculative transactions. Hence, it can be seen that although we have been hit hard, but Every black cloud has a silver lining; with stern steps being taken in the right direction, we shall soon come out of this crisis without much damage.

Reasons for Global Recession: In plain simple English by Eklavya on OCTOBER 18, 2008

These days the most talked about news is the current financial crisis that has engulfed the world economy. Every day the main headline of all newspapers is about our falling share markets, decreasing industrial growth and the overall negative mood of the economy. For many people an economic depression has already arrived whereas for some it is just round the corner. In my opinion the depression has already arrived and it has started showing its effect on India. So what has caused this major economic upheaval in the world? What is the cause of falling share markets the world over and bankruptcy of major banks? In this article, I shall try to explain the reasons for recent economic depression for all those who find it difficult to understand the complex economics lingo and are looking for a simple explanation. It all started in US In order to understand what is now happening in the world economy, we need to go a little back in past and understand what was happening in the housing sector of America for past many years. In US, a boom in the housing sector was driving the economy to a new level. A combination of low interest rates and large inflows of foreign funds helped to create easy credit conditions where it became quite easy for people to take home loans. As more and more people took home loans, the demands for property increased and fueled the home prices further. As there was enough money to lend to potential borrowers, the loan agencies started to widen their loan disbursement reach and relaxed the loan conditions. The loan agents were asked to find more potential home buyers in lieu of huge bonus and incentives. Since it was a good time and property prices were soaring, the only aim of most

lending institutions and mortgage firms was to give loans to as many potential customers as possible. Since almost everybody was driving by the greed factor during that housing boom period, the common sense practice of checking the customers repaying capacity was also ignored in many cases. As a result, many people with low income & bad credit history or those who come under the NINJA (No Income, No Job, No Assets) category were given housing loans in disregard to all principles of financial prudence. These types of loans were known as subprime loans as those were are not part of prime loan market (as the repaying capacity of the borrowers was doubtful). Since the demands for homes were at an all time high, many homeowners used the increased property value to refinance their homes with lower interest rates and take out second mortgages against the added value (of home) to use the funds for consumer spending. The lending companies also lured the borrowers with attractive loan conditions where for an initial period the interest rates were low (known as adjustable rate mortgage(ARM). However, despite knowing that the interest rates would increase after an initial period, many sub-prime borrowers opted for them in the hope that as a result of soaring housing prices they would be able to quickly refinance at more favorable terms. Bubble that burst However, as the saying goes, No boom lasts forever, the housing bubble was to burst eventually. Overbuilding of houses during the boom period finally led to a surplus inventory of homes, causing home prices to decline beginning from the summer of 2006. Once housing prices started depreciating in many parts of the U.S., refinancing became more difficult. Home owners, who were expecting to get a refinance on the basis of increased home prices, found themselves unable to re-finance and began to default on loans as their loans reset to higher interest rates and payment amounts. In the US, an estimated 8.8 million homeowners nearly 10.8% of total homeowners had zero or negative equity as of March 2008, meaning their homes are worth less than their mortgage. This provided an incentive to walk away from the home than to pay the mortgage.

Foreclosures ( i.e. the legal proceedings initiated by a creditor to repossess the property for loan that is in default ) accelerated in the United States in late 2006. During 2007, nearly 1.3 million U.S. housing properties were subject to foreclosure activity. Increasing foreclosure rates and unwillingness of many homeowners to sell their homes at reduced market prices significantly increased the supply of housing inventory available. Sales volume (units) of new homes dropped by 26.4% in 2007 as compare to 2006. Further, a record nearly four million unsold existing homes were for sale including nearly 2.9 million that were vacant. This excess supply of home inventory placed significant downward pressure on prices. As prices declined, more homeowners were at risk of default and foreclosure. Now you must be wondering how this housing boom and its subsequent decline is related to current economic depression? After all it appears to be a local problem of America. What complicated the matter? Unfortunately, this problem was not as straightforward as it appears. Had it remained a matter between the lenders (who disbursed risky loans) and unreliable borrowers (who took loans and then got defaulted) then probably it would remain a local problem of America. However, this was not the case. Let us understand what complicated the problem. For original lenders these subprime loans were very lucrative part of their investment portfolio as they were expected to yield a very high return in view of the increasing home prices. Since, the interest rate charged on subprime loans was about 2% higher than the interest on prime loans (owing to their risky nature); lenders were confidant that they would get a handsome

return on their investment. In case a sub-prime borrower continued to pay his loans installment, the lender would get higher interest on the loans. And in case a sub-prime borrower could not pay his loan and defaulted, the lender would have the option to sell his home (on a high market price) and recovered his loan amount. In both the situations the Sub-prime loans were excellent investment options as long as the housing market was booming. Just at this point, the things started complicating. With stock markets booming and the system flush with liquidity, many big fund investors like hedge funds and mutual funds saw subprime loan portfolios as attractive investment opportunities. Hence, they bought such portfolios from the original lenders. This in turn meant the lenders had fresh funds to lend. The subprime loan market thus became a fast growing segment. Major (American and European) investment banks and institutions heavily bought these loans (known as Mortgage Backed Securities, MBS) to diversify their investment portfolios. Most of these loans were brought as parts of CDOs (Collateralized Debt Obligations). CDOs are just like mutual funds with two significant differences. First unlike mutual funds, in CDOs all investors do not assume the risk equally and each participatory group has different risk profiles. Secondly, in contrast to mutual funds which normally buy shares and bonds, CDOs usually buy securities that are backed by loans (just like the MBS of subprime loans.) Owing to heavy buying of Mortgage Backed Securities (MBS) of subprime loans by major American and European Banks, the problem, which was to remain within the confines of US propagated into the words financial markets. Ideally, the MBS were a very attractive option as long as home prices were soaring in US. However, when the home prices started declining, the attractive investments in Subprime loans become risky and unprofitable. As the home prices started declining in the US, sub-prime borrowers found themselves in a messy situation. Their house prices were decreasing and the loan interest on these houses was soaring. As they could not manage a second mortgage on their home, it became very difficult for them to pay the higher interest rate. As a result many of them opted to default on their home loans and vacated the house. However, as the home prices were falling rapidly, the lending companies, which were hoping to sell them and recover the loan amount, found them in a situation where loan amount exceeded the total cost of the house. Eventually, there remained no option but to write off losses on these loans.

The problem got worsened as the Mortgage Backed Securities (MBS), which by that time had become parts of CDOs of giant investments banks of US & Europe, lost their value. Falling prices of CDOs dented banks investment portfolios and these losses destroyed banks capital. The complexity of these instruments and their wide spread to major International banks created a situation where no one was too sure either about how big these losses were or which banks had been hit the hardest. Mayhem in the banks. The effects of these losses were huge. Global banks and brokerages have had to write off an estimated $512 billion in subprime losses so far, with the largest hits taken by Citigroup ($55.1 billion) and Merrill Lynch ($52.2 billion). A little over half of these losses, or $260 billion, have been suffered by US-based firms, $227 billion by European firms and a relatively modest $24 billion by Asian ones. Despite efforts by the US Federal Reserve to offer some financial assistance to the beleaguered financial sector, it has led to the collapse of Bear Sterns, one of the worlds largest investment banks and securities trading firm. Bear Sterns was bought out by JP Morgan Chase with some help from the US Federal Bank (The central Bank of America just like RBI in India) The crisis has also seen Lehman Brothers the fourth largest investment bank in the US and the one which had survived every major upheaval for the past 158 years file for bankruptcy. Merrill Lynch has been bought out by Bank of America. Freddie Mac and Fannie Mae, two giant mortgage companies of US, have effectively been nationalized to prevent them from going under. Reports suggest that insurance major AIG (American Insurance Group) is also under severe pressure and has so far taken over$82.9 billion so far to tide over the crisis. From this point, a chain reaction of panic started. Since banks and other financial institutes are like backbone for other major industries and provide them with investment capital and loans, a loss in the net capital of banks meant a serious detriment in their capacity to disburse loans for various businesses and industries. This presented a serious cash crunch situation for companies who needed cash for performing their business activities. Now it became extremely difficult for them to raise money from banks. What is worse is the fact that the losses suffered by banks in the subprime mess have directly affected their money market the world over.

Now what is a money market? Money Market is actually an inter-bank market where banks borrow and lend money among themselves to meet short-term need for funds. Banks usually never hold the exact amount of cash that they need to disburse as credit. The inter-bank market performs this critical role of bringing cash-surplus and cash-deficit banks together and lubricates the process of credit delivery to companies (for working capital and capacity creation) and consumers (for buying cars, white goods etc). As the housing loan crisis intensified, banks grew increasingly suspicious about each others solvency and ability to honour commitments. The inter-bank market shrank as a result and this began to hurt the flow of funds to the real economy. Panic begets panic and as the loan market went into a tailspin, it sucked other markets into its centrifuge. The liquidity crunch in the banks has resulted in a tight situation where it has become extremely difficult even for top companies to take loans for their needs. A sense of disbelief and extreme precaution is prevailing in the banking sectors. The global investment community has become extremely risk-averse. They are pulling out of assets that are even remotely considered risky and buying things traditionally considered safe-gold, government bonds and bank deposits (in banks that are still considered solvent). As such this financial crisis is the culmination of the above mentioned problems in the global banking system. Inter-bank markets across the world have frozen over. The meltdown in stock markets across the world is a victim of this contagion. Governments and central banks (like Fed in US) are trying every trick in the book to stabilize the markets. They have pumped hundreds of billions of dollars into their money markets to try and unfreeze their inter-bank and credit markets. Large financial entities have been nationalized. The US government has set aside $700 billion to buy the toxic assets like CDOs that sparked off the crisis. Central banks have got together to co-ordinate cuts in interest rates. None of this has stabilized the global markets so far. However, it is hoped that proper monitoring and controlling of the money market will eventually control the situation. How it has affected India? In the age of globalization, no country can remains isolated from the fluctuations of world economy. Heavy losses suffered by major International Banks is going to affect all countries of the world as these financial institutes have their investment interest in almost all countries.

As of now India is facing heat on three grounds: (1) Our Share Markets are falling everyday, (2) Rupee is weakening against dollars and (3) Our banks are facing severe crash crunch resulting in shortage of liquidity in the market. Actually all the above three problems are interconnected and have their roots in the abovementioned global crisis. For the last two years, our stock market was touching new heights thanks to heavy investments by Foreign Institutional Investors (FIIs). However, when the parent companies of these investors (based mainly in US and Europe) found themselves in a severe credit crunch as a result of sub-prime mess, the only option left with these investors was to withdraw their money from Indian Stock Markets to meet liabilities at home. FIIs were the main buyers of Indian Stocks and their exit from the market is certain to wreak havoc in the market. FIIs who were on a buying spree last year, are now in the mood of selling their stocks in India. As a result our Share Markets are touching new lows everyday. Since, the money, which FIIs get after selling their stocks, needs to be converted into dollars before they can sent it home, the demands for dollars has suddenly increased. As more and more FIIs are buying dollars, the rupee is loosing its strength against dollar. As long as demands for dollars remain high, the rupee will keep loosing its strength against dollar. The current financial crisis has also started directly affecting Indian Industries. For the past few years, the two most preferred method of raising money by the companies were Stock Markets and external borrowings on low interest rates. Stock Markets are bleeding everyday and it is not possible to raise money there. Regarding external borrowing from world markets, this option has also become difficult. In the last fiscal year alone, India borrowed $29 billion from foreign lenders and got $34 billion of foreign direct investment. A global recession has hurt external demand. International lenders who have become extremely risk aversive can limit access to international capital. If that happens, both Indias financial markets and the real economy will be hurt in the process. Suddenly, the 9% growth target does not seem that doable any more; we should be happy to clock 7% this fiscal year and the next.

However, one positive point in favor of India is the fact that Indian Banks are more or less secured from the ill-effects of sub-prime mess. A glance at Indian banks balance sheets would show that their exposure to complex instruments like CDOs is almost nil. In India, still the major banking operations are in the hands of Public Sector Banks who exercise extreme cautions in disbursing loans to needy people/companies. As a result, we are not likely to see a repeat of sub-prime crisis in India. Though there have been a presence of big US/European Banks in India and even some Indian banks (like ICICI) have some foreign subsidiary with stake in the sub-prime losses, there presence is miniscule as compare to the overall size of Indian banking industry. So at least on this major front we need not worry much. However, a global depression is likely to result in a fall in demand of all types of consumer goods. In 2007-08, India sold 13.5% of its goods to foreign buyers. A fall in demand is likely to affect the growth rate this year. Our export may get affected badly. A negative atmosphere, shortage of cash, fall in demands, reducing growth rate and uncertainties in the market are some of the most visible aspects of an economic depression. What started as a small matter of sub-prime loan defaulters has now become a subject of global discussion and has engulfed the global economy scenario. Greed of somewoes of billions If you think about this with a cool mind, you will find that the underlying cause of this depression is the greed of those who failed to anticipate the consequence of their actions. On a more ideological front, it is high time to have a rethink on the very idea of free markets and capitalism. I think the time has come to evolve a capitalism where everything works under a broad regulatory framework and we do not see a repeat of this condition where greed of some people can affect the lives of billions. So here concludes my attempt to explain the current economic crisis which has started to affect the lives of all of us. The above explanation is very simple and by no means it presents an accurate picture (i.e the one that includes all the micro/macro factors) of the crisis. However, I hope that it must have given you a broad idea of the reasons behind current economic depression. Feel free to post your comments on this issue.

GLOBAL RECESSION AND ITS IMPACT ON INDIAN ECONOMY Pankaj Dogra, Sheikh Kashif UNIVERSITY OF JAMMU, INDIA Abstract: This paper is an attempt to look into the impact of global recession on Indian financial market, major initiatives taken up by the Government and Reserve Bank of India in the order to contain it with special focus on employment, import-export, interest rates, risk management, credit demand and taxation. Key Words: Global Recession, Impact on Indian Economy, GDP, Taxation, and Interest Rate, Risk Introduction The economic slowdown of the advanced countries which started around mid-2007, as a result of sub-prime crisis in USA, led to the spread of economic crisis across the globe. Many hegemonic financial institutions like Lehman Brothers or Washington Mutual or General Motors collapsed and several became bankrupt in this crisis. Even as recently as six months ago, there was a view that the fallout of the crisis will remain confined only to the financial sector of advanced economies and at the most there would be a shallow effect on emerging economies like India. Many economists are now predicting that this Great Recession of 2008-09 will be the worst global recession since the 1930s. Meaning Of Recession A recession is a decline in a country's Gross domestic product (GDP) growth for two or more consecutive quarters of a year. A recession is also preceded by

several quarters of slowing down. An economy, which grows over a period of time, tends to slow down the growth as a part of the normal economic cycle. An economy typically expands for 6-10 years and tends to go into a recession for about six months to 2 years. A recession normally takes place when consumers lose confidence in the growth of the economy and spend less. This leads to a decreased demand for goods and services, which in turn leads to a decrease in production, lay-offs and a sharp rise in unemployment Impact On Indian Economy In India, the impact of the crisis has been deeper than what was estimated by our policy makers although it is less severe than in other emerging market economies. The extent of impact has been restricted due to several reasons such as Indian financial sector particularly our banks have no direct exposure to tainted assets and its off-balance sheet activities have been limited. Indias growth process has been largely domestic demand driven and its reliance on foreign savings has remained around 1.5 per cent in recent period. Indias merchandise exports are around 15 per cent of GDP, .I. Stock Market The economy and the stock market are closely related as the buoyancy of the economy gets reflected in the stock market. Due to the impact of global economic recession, Indian stock market crashed from the high of 20000 to a low of around 8000 points. Corporate performance of most of the companies

remained subdued, and the impact of moderation in demand was visible in the substantial deceleration during the current fiscal year. Corporate profitability also exhibited negative

growth in the last three successive quarters of the year II. Forex Market In India, the current economic crisis was largely insulated by the reversal of foreign institutional investment (FII), external commercial borrowings (ECB) and trade credit. Its spillovers became visible in September-October 2008 with overseas investors pulling out a record USD 13.3 billion and fall in the nominal value of the rupee from Rs. 40.36 per USD in March 2008 to Rs. 51.23 per USD in March 2009, reflecting at 21.2 per cent depreciation during the fiscal 2008-09.Hence, sharp fluctuation in the overnight forex rates and the depreciation of therupee reflects the combined impact of the global credit crunch and the deleveraging process underway in Indian forex market. III. Money Market The money market consists of credit market, debt market and government securities market. All these markets are in some or other way related to the soundness of banking system as they are regulated by the Reserve Bank of India. According to the Report submitted by the Committee for Financial Sector

Assessment (CFSA), set up jointly by the Government and the RBI, our financial system is essentially sound and resilient, and that systemic stability is by and large robust and there are no significant vulnerabilities in the banking system. Yet, NPAs of banks may indeed rise due to slowdown as Reserve Bank has pointed out. But given the strength of the banks balance sheets, that rise is not likely to pose any systemic risks, as it might in many advanced countries. IV. Slowing GDP In the past 5 years, the economy has grown at an average rate of 8-9 per cent. Services which contribute more than half of GDP have grown fastest along with manufacturing which has also done well. But this impressive run of GDP ended in the first quarter of 2008 and is gradually reduced. Even before the global confidence dived, the economy was slowing. V Reduction In Import-Export During 2008-09, the growth in exports was robust till August 2008. However, in September 2008, export growth evinced a sharp dip and turned negative in October 2008 and remained negative till the end of the financial year. For the first time in seven years, exports have declined in absolute terms in October 2008.. Similarly, imports growth also witnessed a deceleration during OctoberNovember 2008, before turning negative thereafter. VI. Reduction In Employment Employment is worst affected during any financial crisis. So is true with the current global meltdown. This recession has adversely affected the service industry of India mainly the BPO, KPO,

IT companies etc. According to a sample survey by the commerce ministry 109,513 people lost their jobs between August and October 2008, in export related companies in several sectors, primarily textiles, leather, engineering, gems and jewelry, handicraft and food processing VIII. Taxation The economic slowdown has severely dented the Centres tax collections with indirect taxes bearing the brunt. The taxGDP ratio registered a steady increase from 8.97 per cent to 12.56 per cent between 2000-01 and 2007-08. But this trend has been reversed as the tax-GDP ratio has fallen to 10.95 per cent during current fiscal year mainly on account of reduction in Customs and Excise Tax due to effect of economic slowdown

Response To The Crisis The future trajectory of the economic meltdown is not yet clear. However, the Government and the Reserve Bank responded to the challenge strongly and promptly to infuse liquidity and restore confidence in Indian financial markets. The fiscal and monetary response to the crisis has been discussed in the following pointsI. Fiscal Response The Government launched three fiscal stimulus packages between December 2008 and February 2009. These stimulus packages came on top of an already announced expanded safety-net programme for the rural poor, the farm loan waiver package and payout

following the Sixth Pay Commission report, all of which added to stimulating demand. The challenge for fiscal policy is to balance immediate support for the economy with the need to get back on track on the medium term fiscal consolidation process. The fiscal stimulus packages and other measures have led to sharp increase in the revenue and fiscal deficits which, in the face of slowing private investment, have cushioned the pace of economic activity. II. Monetary Response The RBI has taken several measures aimed at infusing rupee as well as foreign exchange liquidity and to maintain credit flow to productive sectors of the economy such as infusing liquidity through interest rate management, risk management and credit management which is described in detail under the following heads:1. Interest Rate Management In order to deal with the liquiditycrunch and the virtual freezing ofinternational credit, RBI took steps for monetary expansion which gave a cue to the banks toreduce their deposit and lendingrates. 2. Risk Management There has been a sustained demand from various quarters for exercising regulatory forbearance in regard to extant prudential regulations applicable to the banking sector. As a part of counter-cyclical package, RBI has already made several changes to the current prudential norms for robust risk disclosures, transparency in restructured products and standard assets. 3. Credit Management There was a noticeable decline in the credit demand during 2008-09 which is indicative of slowing economic activity- a major challenge for the

banks to ensure healthy flow of credit to the productive sectors of the economy. The reduced funding demand on the banks should enable them to reduce the interest rates on deposit and thereby reduce the overall cost of funds. Although deposit rates are declining and effective lending rates are falling, there is clearly more space to cut rates given declining inflation. In order to facilitate demand for credit in the economy the Reserve Bank has taken certain steps. Future Outlook For India To sum up we can say that the global financial recession which started off as a sub-prime crisis of USA has brought all nations including India into its fold. The GDP growth rate which was around nine per cent over the last four years has slowed since the last quarter of 2008 owing to deceleration in employment, export-import, tax-GDP ratio, reduction

in capital inflows and significant outflows due to economic slowdown. The demand for bank credit is also slackening despite comfortable liquidity in the system. Indian financial markets are capable of withstanding the global shock, perhaps somewhat bruised but definitely not battered. India, with its strong internal drivers for growth, may escape the worst consequences of the global financial crisis. In other words, the fundamentals of our economy continue to be strong and robust.

Yet, it is not possible to clearly see the path of the crisis and its resolution over the coming months. In this sense, India is not unique as almost every country, whether or not directly affected, has to manage the current economic crisis under uncertainty.