India's response to

Global Financial
Crisis 2008

APO Group 6
What we know about the global financial
crisis is that we don't know very much.
- Paul Samuelson

Our team
Arjun Modi (180103047)
Divyansh Singh (180103078)
Keshav Singh Bhadoria (180101129)
Mounika Naikini (180103133)
Subhra Mishra (180103228)
Sreekumar Kavikkal (180103223)
Vatsal Sharma (180103252)

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The Financial Crisis of 2008 was a global
financial crisis that is the worst the world has
seen since 1933 with the Great Depression.
Drastic measures to confront seemingly
insurmountable financial calamity resulted in the
creation of TARP (Troubled Assets Relief
Program), $700 billion safety net by the U.S.
Congress.

The crisis has caused the Recession of 2008,

which reached bottom in summer 2009, causing
a worldwide economic decline that is the most
severe since the 1930s.

As of 2013, there are still 4 million fewer jobs in

the U.S. than in 2008 - despite $5 trillion in
federal stimulus spending.
 Global Financial Crisis
Causes

• Financial Innovation in the • The residential housing

market leading to mortgage prices boom and financial
backed securities such as innovation lead to credit
CDOs boom, which eventually
bust
.

• Banking Crisis in the form • Deterioration in the

of shadow banking financial institutions’
leading to information balance sheets.
asymmetry

4/5/2019
 Due to the global liquidity squeeze the credit demand of Indian corporates and Banks
was shifted to domestic banking sector from global finances leading to pressure on
domestic capital and money market.

Global deleveraging process lead to reversal of capital flows which

put pressure on forex markets and leading downward trend of rupee.

Impact on To m a n a g e v o l a t i l i t y, R e s e r v e b a n k ’ s i n t e r v e n t i o n i n
forex market added to liquidity tightening.
Financial
Institutions
There was rapid depreciation of
exchange rate and surge in short -
term interest rates.

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 Immediately after Lehman failure in September 2008, the risk aversion of financial
system increased and banks became cautious about lending.

In 1991, two immediate external shocks contributed to the large

current account deficit of 3.1 in 1990 -91.

Impact on Large fiscal imbalances of 1980s and precipitated by

the Gulf war; India’s oil import bill swelled, exports
slumped, credit dried up and investors took their own
Financial money out leading to fiscal deficit rise to 12.7 percent.

Institutions First was the Gulf crisis in August 1990

which increased petroleum costs.
The second shock was the global recession:
declined world growth to 2.25 percent in
1991 from 4.5 percent in 1988.

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 Impact on the Indian Economy

 Impact on stock market  Decreased consumer demand

 Impact on India’s trade affected Indian exports
 Impact on India’s export  Impact on India’s handloom sector
export and tourism

 Demand for domestic liquidity put  Correction in the asset prices

pressure on interest rates
 FII and FDI
 Exchange rate depreciation

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Indian Government’s
Response
SEBI Removed its year-old restrictions on
participatory notes

External commercial borrowing rules were liberalized

to include the mining, exploration and refining
sectors in the definition of infrastructure

RBI cut the cash reserve ratio

Repo rate was cut five times by 4 percentage point
from 9 per cent to 5 per cent in Oct. 2008. As a
result of this various Indian banks reduced their
prime lending rate (PLR) to around 12 to 12.5 per
cent
Increased Government expenditure and cut in
indirect taxes to boost both consumption demand and
investment demand
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 India’s Response to Financial
Crisis
RBI cut cash reserve
About Rs. 2,00,000Cr
ratio (CRR) four times
had been infused into
in 0ct.2008 to January
the domestic money
2009, from 9 per cent
market
to 5 percent

RBI reduced statutory

liquidity ratio (SLR) from
25 percent to 24 which RBI cut reverse repo
enabled banks to get Rs. rate to 4 percent
20,000Cr

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Economy Stabilization

• During 2010-11 our exports • The growth of industry which had

• The growth of GDP dipped to 6.7
recorded on an average 29.5 per fallen to 3.7 per cent in 2008-09
per cent in 2008-09 but again
cent growth (in US $) year-on- rose to 8 per cent in 2009-10 and
rose to 8.6 per cent in the year
year basis which is quite 2010-11
2009-10 and to 9.3% in 2010-11
impressive

• Agriculture after registering a

very low growth of 1.6% in 2008- • Indian rupee appreciated to
09 and 0.4 per cent in 2009- 10 around Rs. 44 per US $ and
achieved a high growth of 6.6 BSE Index shot up to around
per cent in 2010-11 20,000 mark in September 2010

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THANK YOU

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