Great Recession Essay Example

this negatively affected Indian companies that relied on foreign funds for trading and corporate profitability, the country's GDP remained steady due to its significant share of domestic household savings. This situation also caused an increase in demand for domestic fund access and peer pressure supply, which limited capacity increases. Additionally, India faced a sudden decline in exports during the crisis as a substantial portion of its economy depends on exports. In October 2008, after 35% growth in previous months, exports declined by 15%, while shipments dropped by 33%.

India's exports suffered their largest ever drop of 3%, impacting multiple industrial sectors such as manufacturing and jewellery exports. This led to the closure of small units and an estimated loss of 1 million jobs. However, the Indian IT industry plays a crucial role in transactions and foreign fund flow, contributing significantly towards the country's GDP while also serving as a key employment opportunity generator. India enjoys global recognition for its top-quality software and services, utilizing ample labor resources to become a major service provider worldwide.

Indian IT companies are attractive to foreign companies for software development and service outsourcing. The US outsourcing boom left a significant impact on India's IT industry, a major player in employment and foreign exchange. Around 60% of the sector's revenue relies on US suppliers, with 30% generated from financial services companies. Indian firms are praised for their flexibility, quality products and efficient services. Due to limited partnering with major financial services, the IT industry was largely saved from the impact of the recession.

Despite partnering with US financial companies such as Lehman Brothers Inc and Meryl Lynch Inc, some Indian IT companies were slightly

affected by the US economic slowdown. As a result, 70% of firms negotiated for lower rates with suppliers, and almost 60% reduced their contracts. This led to a reduction in growth of Indian IT firms by 2-3%. Nonetheless, US firms continued to offer new outsourcing opportunities to Indian companies involved in mergers and acquisitions, seeking to reduce selling, general, and administrative costs. Despite the economic downturn affecting some firms, this created equal outsourcing opportunities in the IT industry. The Indian financial market remained resilient even as foreign institutional investors disappeared.

Due to the economic crisis, investors' mentality shifted towards withdrawing from risky markets. This resulted in a significant capital outflow and a liquidity crunch which put the Indian stock market under immense pressure. However, the Indian market remained resilient due to its reliance on domestic consumption, which includes productivity in the agricultural sector, domestic infrastructure products, and small to medium enterprises. Most of the deposits are with nationalized banks, which have earned investors' trust as their investments are protected by the Indian Government. Despite the crisis, the domestic banking sector remains secure, and nationalized banks remain at the core of the system.

The investment of US financial firms into derivatives by various banks resulted in vulnerability during the economic crisis. Other contributing factors included a decrease in foreign exchange reserves held by Reserve Bank of India, a decline in stock share value, and a decreased value of the rupee compared to the US dollar. The Reserve Bank implemented recovery measures to halt rupee devaluation, but this caused a corresponding decrease in foreign reserves. As India experienced significant capital investment inflow, the rupee's value against the dollar decreased

further. India suffered from a substantial trade deficit and international payments such as debt repayment and profit repatriation.

Despite the steady increase in the stock market over previous months, it eventually declined. The government of India and the Reserve Bank of India responded to this challenge by implementing various efforts and procedures to maintain a free flow position of rupee liquidity, foreign exchange liquidity, and credit tracks through strict monetary policies. However, they altered their approach by easing monetary constraints, reducing interest rates, decreasing the quantum of bank reserves impounded by the central bank, and expanding liberalization for export credit refinance facilities. To manage foreign exchange, the Reserve Bank of India raised the interest rate ceiling on foreign deposits by non-resident Indians.

The Reserve Bank of India relaxed the external commercial borrowings regulations for corporates, allowing non-banking financial companies and housing companies to access foreign borrowing. Unconventional measures were taken to improve the liquidity scenario and support the economy. Currency swap facilities were provided to Indian banks for short-term funding requirements, and non-banking financial organizations were supported through a refinancing channel. Small industries were facilitated with lending resources to boost housing and exports.

Amid the global economic crisis, the Reserve Bank of India and Central Government of India jointly implemented tactics to guarantee fiscal stability. The government instituted the Fiscal Responsibility and Budget Management Act that alleviated financial objectives. Moreover, two financial laws were introduced that sum up to approximately 3% of GDP. These measures encompassed debt forgiveness for farmers, investments in infrastructure, enhanced backing for small and medium enterprises, and public expenditures intended to spur demand. As a result, an overall amount equaling 7% of GDP

was infused into the monetary system.

India's economic forecast presents a mix of advantageous and disadvantageous growth prospects. Despite the decline in certain domains like construction, transport, communication, trade, hotels, and restaurants that has affected the services sector - which accounts for 57% of GDP in recent times - India's economy depends significantly on exports. Exports make up 15% of its entire production output and have grown by 3.4%, reaching 168 despite the downturn.

Corporate margins decreased and business confidence was impacted by economic uncertainty, which caused India to miss the government's target of achieving 200 billion in the fiscal year ended March 31, 2008. Despite this, India experienced some benefits during the financial crisis, including a greater than anticipated reduction in inflation measured by the wholesale price index. This drop in inflation should improve consumer demand and lower costs for corporations, despite high input costs and weakened demand.

The reduction of subsidies for oil and fertilizer companies due to the decrease in global crude oil and naphtha prices is expected to open up spending on infrastructure developments, which could help reduce current account deficits by causing imports to shrink more than exports. India's banking system has been able to maintain financial market stability thanks to its well-capitalized and prudently-regulated measures, and the country benefits from foreign investors' confidence in its economy, which is bolstered by the comfortable levels of foreign reserves. Unlike in developed countries, India's majority avoidance of assets and equity markets means that the negative impact of the wealth loss effect in capital markets is not likely to affect the country.

India has taken multiple steps to protect its agricultural sector, including prioritizing lending for

agriculture as required by the government, which guarantees that credit will remain unaffected. Furthermore, the government has provided a farm waiver package that provides further protection. In addition, India has introduced various social safety and awareness programs.

Although the global financial crisis had an impact on various sectors in India such as IT and finance, resulting in a decrease of exports and limited availability of international funds, India remained relatively unaffected compared to other emerging economies. To assist those who were negatively affected by this economic instability, the government introduced the rural employment guarantee program. Moreover, multiple challenges related to credit crunch were faced by the government during this period.

The Indian Government and Reserve Bank of India have worked together to address a significant economic issue by implementing procedures, regulations, and laws. It is essential for both developed and developing countries to build strong and independent economies during the current global economic crisis. The impact of an economic downturn provides a means of evaluating worldwide financial stability and financial policies.