Global Meltdown and its Impact on the Indian Economy:
With the collapse of Lehman Brothers and other Wall Street icons, there was growing recession which affected the US, the European Union (EU) and Japan. This was the result of large scale defaults in the US housing market as the banks went on providing risky loans without adequate security and the repaying capacity of the borrower. The principal source of transmission of the crisis has been the real sector, generally referred to as the ‘Main Street’. This crisis engulfed the United States in the form of creeping recession and this worsened the situation. As a consequence, US demand for imports from other countries indicated a decline. The basic cause of the crisis was largely an unregulated environment, mortgage lending to subprime borrowers.
Although at one time it was thought that this crisis would not affect the Indian economy, later it was found that the Foreign Direct Investment (FDI) started drying up and this affected investment in the Indian economy. It was; therefore, felt that the Indian economy will grow at about seven per cent in 2008-09 and at six per cent in 2009-10. The lesson of this experience is that India must exercise caution while liberalizing its financial sector.
The industries most affected by weakening demand were airlines, hotels, real estate. Besides this, Indian exports suffered a setback and there was a setback in the production of export-oriented sectors. The government advised the sectors of weakening demand to reduce prices. It provided some relief by cutting down excise duties, but such simplistic solutions were doomed to failure. Weakening demand led to producers cutting production. To reduce the impact of the crisis, firms reduced their workforce, to reduce costs. This led to increase in unemployment but the total impact on the economy was not very large. Industrial production and manufacturing output declined to five per cent in the last quarter of 2008-09. Consequently, a vicious cycle of weak demand and falling output developed in the Indian economy.
The Term Paper on The Indian Economy
... key investment consideration to reduce costs of production to all sectors of the economy and sustain ever ... by a brief conclusion. 2. The Indian Economy The Indian Economy is listed as the fifth largest ... in growth rate following the Global Financial Crisis in 2008, a major policy issue therefore ... increase to interest rates is to reduce aggregate demand. Figure 3.1 highlights an inflationary hike ...
The main areas to benefit were the following:
(a) Housing—A refinance facility of Rs 4000 crores was provided to the National Housing Bank. Following this, public sector banks announced to provide small home loans seekers loans at reduced rates to step up demand in retail housing sector.
(i) Loans up to Rs 5 lakhs: Maximum interest rate fixed at 8.5 per cent.
(ii) Loans from Rs 5-20 lakhs: Maximum interest rate at 9.25 per cent.
(iii) No processing charges to be levied on borrowers.
(iv) No penalty to be charged in case of pre-payment.
(v) Free life insurance cover for the entire outstanding amount.
This means a borrower can get a loan up to 90 per cent of the value of the house. The government hopes to disburse Rs 15,000 to 20,000 crores under the new package.
(b) Textiles—Due to declining orders from the world’s largest market the United States, the textile sector have been seriously affected.
(c) Infrastructure- The government has been proclaiming that infrastructure is the engine of growth.
(d) Exports—Exports which accounted for 22 per cent of the GDP are expected to fall by 12 per cent.
Pranab Mukherjee has suggested that to reduce the pain of recession, employers should cut wages all along the line to reduce costs, rather than retrenching workers and thus add to job losses. To quote: “Jobs must be protected even if it means some reduction in compensation at various levels.” This is a useful tool to fight recession and it has also been tried in several countries. This suggestion should be implemented until such time that the economy gets revived.
OBJECTIVES:
1. To examine:
A. The past meltdowns-
The Term Paper on Impact Of The Recent Eurozone Crisis On The Uk Economy
The Eurozone crisis is a major issue among academia and society, which is having a large impact on the world economy. It was triggered by a sovereign debt crisis, which started in some countries from the periphery of the Eurozone (Portugal, Ireland, Italy, Greece, Spain, also known as PIIGS). This later transmitted to the other members of the monetary union and members of the EU as a whole through ...
* 20th century
* Wall Street Crash of 1929, followed by 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
* Secondary banking crisis of 1973–1975 – United Kingdom
* 1980s – Latin American debt crisis – beginning in Mexico in 1982 with the Mexican Weekend
* Bank stock crisis (Israel 1983)
* 1987 – Black Monday (1987) – the largest one-day percentage decline in stock market history
* 1989–91 – United States Savings & Loan crisis
* 1990 – 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
* 1998- Russian financial crisis
* 21st century
* 2000–2001 – Turkish Crises
* 2000 – late 2000s recession
* 2001 – Argentine Crises
* 2001 – Bursting of dot-com bubble – speculations concerning internet companies crashed
* 2007–11 – global financial Crisis on the Mauritian Financial Services Sector">financial crisis of 2007–2011, including the 2010 European sovereign debt crisis
B. Reasons for it
C. Major economies affected- U.S, Russia, Japan, India and
D. Impact on Indian economy.
2. To suggest the measures to curb the meltdown.
SOURCES AND METHODOLOGY OF DATA:
Primary data: Research papers, Magazine articles (Forbes, Business and economy, Venture)
Secondary data: Internet Websites (list specified in bibliography section at the end)
The Business plan on Global Financial Market Regulations
The Global Financial Crisis (GFC) is over. Many banks have repaid the bailout dollars and bonus payments are back. What was all the fuss about anyway? Nothing will change because the market will always find a way to overcome attempts to regulate it and the behavior of market participants. This paper attempts to address the authenticity of the above scathing opinion on the apparent apathy with ...
FINDINGS AND SUGGESTIONS:
You cannot stop the present economic crisis but you can prevent the next one:
This is not the first crisis in our financial system, not the first time that those who believe in free and unregulated markets have come running to the government for bail-outs. There is a pattern here, one that suggests deep systemic problems and a variety of solutions:
1. We need first to correct incentives for executives, reducing the scope for conflicts of interest and improving shareholder information about dilution in share value as a result of stock options. We should mitigate the incentives for excessive risk-taking and the short-term focus that has so long prevailed, for instance, by requiring bonuses to be paid on the basis of, say, five-year returns, rather than annual returns.
2. Secondly, we need to create a financial product safety commission, to make sure that products bought and sold by banks, pension funds, etc. are safe for “human consumption.” Consenting adults should be given great freedom to do whatever they want, but that does not mean they should gamble with other people’s money. Some may worry that this may stifle innovation. But that may be a good thing considering the kind of innovation we had — attempting to subvert accounting and regulations.
3. We need to create a financial systems stability commission to take an overview of the entire financial system, recognizing the interrelations among the various parts, and to prevent the excessive systemic leveraging that we have just experienced.
4. We need to impose other regulations to improve the safety and soundness of our financial system, such as “speed bumps” to limit borrowing. Historically, rapid expansion of lending has been responsible for a large fraction of crises and this crisis is no exception.
5. We need better consumer protection laws, including laws that prevent predatory lending.
6. We need better competition laws. The financial institutions have been able to prey on consumers through credit cards partly because of the absence of competition. But even more importantly, we should not be in situations where a firm is “too big to fail.” If it is that big, it should be broken up. |
The Term Paper on Global Financial Crisis 2
... global financial crisis that unraveled in 2007 did expose some serious flaws in the regulations internationally as well as domestically and the global financial system. ... different institutions came together to produce and flood the market with sophisticated and diversified products and made them look ... which were never released. This type of policy does result in growth but at the same time it also ...
CONCLUSION:
The 2007–2012 global financial crisis, also known as the Global Financial Crisis and 2008 financial crisis, is considered by many economists to be the worst financial crisis since the Great Depression of the 1930s.[1] It resulted in the collapse of large financial institutions, the bailout of banks by national governments, and downturns in stock markets around the world. In many areas, the housing market also suffered, resulting in evictions, foreclosures and prolonged unemployment. The crisis played a significant role in the failure of key businesses, declines in consumer wealth estimated in trillions of US dollars, and a downturn in economic activity leading to the 2008–2012 global recession and contributing to the European sovereign-debt crisis.[2][3]
The bursting of the U.S. housing bubble, which peaked in 2006,[4] caused the values of securities tied to U.S. real estate pricing to plummet, damaging financial institutions globally.[5][6] The financial crisis was triggered by a complex interplay of valuation and liquidity problems in the United States banking system in 2008.[7][8] Questions regarding banksolvency, declines in credit availability and damaged investor confidence had an impact on global stock markets, where securities suffered large losses during 2008 and early 2009. Economies worldwide slowed during this period, as credit tightened and international trade declined.[9] Governments and central banks responded with unprecedented fiscal stimulus, monetary policy expansion and institutional bailouts. Although there have been aftershocks, the financial crisis itself ended sometime between late-2008 and mid-2009.[10][11][12] In the U.S., Congress passed the American Recovery and Reinvestment Act of 2009. In the E.U., the U.K. responded with austerity measures of spending cuts and tax increases without export growth and it has since slid into a double-dip recession.[13][14]
Many causes for the financial crisis have been suggested, with varying weight assigned by experts.[15] The U.S. Senate’s Levin–Coburn Report asserted that the crisis was the result of “high risk, complex financial products; undisclosed conflicts of interest; the failure of regulators, the credit rating agencies, and the market itself to rein in the excesses of Wall Street.”[16]Two factors that have been frequently cited include the liberal use of the Gaussian copula function and the failure to track data provenance.[17]
The Essay on Pension Founds and Financial Market
... proportion to the importance of their financial markets in the world economy. Pension-fund portfolios in particular ... derivative securities. Indeed, the development of global markets for swaps and derivatives makes possible ... financial-market infrastructure, coupled with lack of transparency and accountability as well as inadequate disclosure standards, can prolong or exacerbate a confidence crisis. ...
In response to the financial crisis, both market-based and regulatory solutions have been implemented or are under consideration.[20] Paul Krugman, author of End This Depression Now! (2012), argues that while current solutions have stabilized the world economy, the world economy will not improve unless it receives further stimulus.[21] .The current type of contraction requires balance sheet repair via currency depreciation and export-driven growth. Fiscal stimulus extends a current account deficit and retards export growth.[14][22] If the world economy does not improve, many economists fear sovereign default is a real possibility in several European countries and even the United States.[23]
The reforms will not guarantee that we will not have another crisis. The ingenuity of those in the financial markets is impressive. Eventually, they will figure out how to circumvent whatever regulations are imposed. But these reforms will make another crisis of this kind less likely, and, should it occur, make it less severe than it otherwise would be.
