Steering India Through Global Recession

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Steering Indian Economy through Global Recession

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Presented By: Avirup Gupta Rashi Paliwal Ravi Singh Kalra Upasna Kapoor Macro Economic Management

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Content Globalization Vs. Decoupling Steering India through recession with

monetary & fiscal measures Investment Priorities Corporate responsibilities and Prudential

regulations

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Introduction Present financial crisis Became prominent in September 2008 Large financial institute failure and declining stock exchange The crisis led to liquidity problem Emerged as Currency Crisis in October 08’ Impact on developing countries too, like India 06/27/09

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Globalization Vs. Decoupling Closed or preserved economy Gained momentum recently For developing economies its not a

feasible solution Ideas, money, and commodities can flow

at the speed of click of mouse

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Steering India Through Recession

A Gridlock Situation Consumers refraining from spending

Businesses postponing Recessionary Pressures Bank’s refusing investments to lend

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Policies To Control Policies to control Recession recession

Monetary policy

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Fiscal Policy

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Monetary Policy Policy through which the government, central bank, or monetary authority of a country controls:

The supply of money



Availability of money, and



Cost of money or rate of interest Macro Economic Management

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Fiscal Policy The Government’s Spending and Taxation policies influence:Aggregate demand and the level of

economic activity The pattern of resource allocation The employment rate in an economy 06/27/09

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Rec

ess

Growth Rate

Bo

om

Peak

io n

h

g Trou

Time

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Indian Government, RBI and Recession Measures Repo rate cut - 9 % to 5.5 % Reverse repo rate - 6 % to 4 % Bank Rate unchanged Cut in CRR of scheduled banks -5 %

from a peak of 9 % in august 2008

Continued Accelerated depreciation for commercial

vehicles.

Free trade pact with European union Public sector banks to shed SLR flab- infuse a

fresh credit of about 1.2 lakh crore

Export promotion Increase in FII investment limit – from US $ 6

bn to US $ 15 bn

Questions? In the current slowdown is Monetary policy

more effective than fiscal policy, considering the fact that Fiscal Policy suffers from inside Lag? In Indian Context for Fiscal measures what is

more relevant and effective- Government spending or Tax cuts?

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Investment Priorities Consideration s

Employment Generation

Economic Development

Sectors Agriculture IT Infrastructure/ Core

projects Real Estate SMEs

Agriculture sector 60% of the population Increase self sufficiency

and self reliance Modernized system – post harvest storage, transportation, modernization of logistics supply

IT sector 75% income from US Satyam fiasco $ 2 billion spending of

governmentMacro organisations Economic Management

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Infrastructure / Core sector

 Initiator of economic growth  $ 475 billion in next 5 years  Projects – roads(highways),

bridges, electricity, dams, etc.  IIFCL – authorized to raise 100 billion through taxfree bonds

Real estate sector  Initiator of economic progress  Considerations by PSBs to cap

rate at 8%  Change in foreign ownership rule by scaling down minimum area requirements

Small and Medium Enterprises (SMEs) • $ 5 billion, comprising of 11 million units • Production – 8000 products accounting 95% of industrial units • Contributes 40% of industrial output •Expected to contribute 22% of GDP by 2012 • Considerations of PSB lending rates cut within

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Corporate Social Responsibility Regulator named Corporate Social Responsibility Role of government -- as a watchdog on MNC’s Proper accounting disclosures, quality maintenance and disclosures, society & economic welfare

Subprime Crisis - exhibited Corporate Social Irresponsibility Securitization of subprime loan Passing out risks of Non Performing Asset 06/27/09

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ENRON(2001) Financial

scandal involving Enron Corporation and its accounting firm Arthur Andersen The losses not reported in its financial statements.

WIPRO The

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World Bank imposed the ban from 2007 because Wipro offered shares during Macro itsEconomic US IPO in 2000 to Bank Management

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SATYAM Inc. Started when Chairman B. Ramalinga Raju

thwarted buyout of two Maytas firms Raju confessed Rs 7,136 crore fraud Unassuming liability of 1,230 crore Lesson – corporate governance must top Inc’s list of priorities for all domestic and overseas operations

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Questions Raises questions in the public’s mind about what they want markets to be free from. • OR Freedom from only barriers from trade? • OR For also freedom from Government regulations? • OR Even freedom from Responsibility from their actions? So the question here arises • Do the governments need to redefine their roles in the market economy.? • Or Can we expect that the corporate learns lessons? Macro Economic Management 06/27/09

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