Financial Crisis is not a new phenomenon in the modern world. The major financial crisis which brought down the economies of Latin American countries such as Brazil, Mexico was the first experience in the modern era. The IMF and US administration lifted these economies through an expensive bail out plan. The second experience was from the East Asian Financial Crisis triggered by the devaluation of Thai Bhat in July 1997. The crisis pulled down eight South East Asian Countries commonly known as Asian Tigers. The countries were Malaysia, Singapore, Hong Kong, Taiwan, Korea, Indonesia, Philippines and Thailand. The melt down drastically brought down not only the stock and currency markets in these countries but the markets in other developing countries such as USA, Japan etc. were also affected on account of the contagious effect. Fortunately Indian economy was spared from a major crash thanks to the conservative approach our administrators had taken with regard to opening up of our economy to the external world as also the insulation mechanism implemented by sterilizing the cash flows from abroad. But the current crisis emanated from the US sub-prime lending became costly to Indian investors as well due to the steep fall of stock prices and weakening of Indian Rupee.
Indian money market was experiencing severe liquidity crunch on account of the heavy FII out flows consequent to the financial crisis abroad. However, we were quick in reacting by initiating appropriate qualitative as well as quantitative measures to arrest the steep fall and rebuild the lost confidence. Reserve Bank of India pumped around Rs.125000 crores to the market in three tranches by reducing the SLR, CRR and Repo rates considerably. The worst affected areas were real estate and SME sectors due to the reluctance of bankers to lend. The RBI initiative enabled the banks to reduce their lending rates by 75 bp and many banks declared lowering their lending rates, especially to home loan sector. The relaxation in the norms for Participatory Notes was another initiative to boost up FII inflows. Another noteworthy initiative was the increase in foreign investments to 49 per cent from the current threshold limit of 26 per cent for investments in insurance sector. On the qualitative side the Finance Minister and Prime Minister assured the country that our banks and markets were safe and the phenomenon was only temporary. Besides RBI on its part assured liquidity to the banking system and certified the safety of Indian Banks. These measures could ease the tension to a great extend and the market started rebounding as witnessed by the upward journey of stock indices and strengthening of Indian Rupee against dollars. The quarterly results of India Inc. also indicate growth potentials.
However, the buoyancy does not last when we look at the employment sector. Globally, the companies have started downsizing consequent to the financial crisis in order to reduce their cost of operations. The Indian counterparts, especially IT companies and BPOs have to follow the path because their business would come down drastically on account of the slow down in overseas economies. The major part of outsourcing is from US and the bad shape of US economy has already spread black shadow on the IT companies. While large companies like Infosys are trying to avoid a huge downsizing, smaller one has no option and hence started retrenchment. The Prime Minister had appealed the industry captains not to retrench their employees consequent to the meltdown; the Indian branches of overseas companies have already started dropping the employees. Recently American Express showed the doors to their employees in India. The loss of employment may create financial and psychological problems to a large population in the country unless they are suitably redeployed.
These events need not melt down our confidence; at the same time we should not be complacent also. The BRIC report has identified India as one of the major economy in the world by 2050. The phenomenon what we now witness is only temporary. The managers of our economy are not simple politicians but they are able and eminent economists and business executives who are capable of envisioning eventualities and initiate timely corrective measures. Though the industrial production has slowed down now, it will rebound in the ensuing financial year. The agriculture production also is showing positive trend and as such the economy will regain its lost momentum with in a short span of time. The inflation is expected to come down to 7 per cent by February next. The crude prices are falling and are expected to touch $55 per barrel. If the trend continues, we may expect a further decline in inflation to 5 per cent by 2010. The employment opportunities will also go up by the above period. The capital market is expected to perform in a better manner because of the lowering of interest on bank deposits and availability of more funds from banks. However, the ensuing election to the Parliament may bring new political equations which can greatly influence the future progress of the country. Let us hope that the economic agenda of the country will not be disturbed by the election process and change of administration.
Indian money market was experiencing severe liquidity crunch on account of the heavy FII out flows consequent to the financial crisis abroad. However, we were quick in reacting by initiating appropriate qualitative as well as quantitative measures to arrest the steep fall and rebuild the lost confidence. Reserve Bank of India pumped around Rs.125000 crores to the market in three tranches by reducing the SLR, CRR and Repo rates considerably. The worst affected areas were real estate and SME sectors due to the reluctance of bankers to lend. The RBI initiative enabled the banks to reduce their lending rates by 75 bp and many banks declared lowering their lending rates, especially to home loan sector. The relaxation in the norms for Participatory Notes was another initiative to boost up FII inflows. Another noteworthy initiative was the increase in foreign investments to 49 per cent from the current threshold limit of 26 per cent for investments in insurance sector. On the qualitative side the Finance Minister and Prime Minister assured the country that our banks and markets were safe and the phenomenon was only temporary. Besides RBI on its part assured liquidity to the banking system and certified the safety of Indian Banks. These measures could ease the tension to a great extend and the market started rebounding as witnessed by the upward journey of stock indices and strengthening of Indian Rupee against dollars. The quarterly results of India Inc. also indicate growth potentials.
However, the buoyancy does not last when we look at the employment sector. Globally, the companies have started downsizing consequent to the financial crisis in order to reduce their cost of operations. The Indian counterparts, especially IT companies and BPOs have to follow the path because their business would come down drastically on account of the slow down in overseas economies. The major part of outsourcing is from US and the bad shape of US economy has already spread black shadow on the IT companies. While large companies like Infosys are trying to avoid a huge downsizing, smaller one has no option and hence started retrenchment. The Prime Minister had appealed the industry captains not to retrench their employees consequent to the meltdown; the Indian branches of overseas companies have already started dropping the employees. Recently American Express showed the doors to their employees in India. The loss of employment may create financial and psychological problems to a large population in the country unless they are suitably redeployed.
These events need not melt down our confidence; at the same time we should not be complacent also. The BRIC report has identified India as one of the major economy in the world by 2050. The phenomenon what we now witness is only temporary. The managers of our economy are not simple politicians but they are able and eminent economists and business executives who are capable of envisioning eventualities and initiate timely corrective measures. Though the industrial production has slowed down now, it will rebound in the ensuing financial year. The agriculture production also is showing positive trend and as such the economy will regain its lost momentum with in a short span of time. The inflation is expected to come down to 7 per cent by February next. The crude prices are falling and are expected to touch $55 per barrel. If the trend continues, we may expect a further decline in inflation to 5 per cent by 2010. The employment opportunities will also go up by the above period. The capital market is expected to perform in a better manner because of the lowering of interest on bank deposits and availability of more funds from banks. However, the ensuing election to the Parliament may bring new political equations which can greatly influence the future progress of the country. Let us hope that the economic agenda of the country will not be disturbed by the election process and change of administration.
