2008 CRISIS IN INDIA

Impact on India.

The financial crisis of 2007–2008, also known as the global financial crisis and the 2008 financial
crisis, is considered by many economists to have been the worst financial crisis since the Great
Depression of the 1930s.

It began in 2007 with a crisis in the subprime mortgage market in the United States, and
developed into a full-blown international banking crisis with the collapse of the investment
bank Lehman Brothers on September 15, 2008.Excessive risk-taking by banks such as Lehman
Brothers helped to magnify the financial impact globally. Massive bail-outs of financial
institutions and other palliative monetary and fiscal policies were employed to prevent a possible
collapse of the world financial system. The crisis was nonetheless followed by a
global economic downturn, the Great Recession. The European debt crisis, a crisis in the
banking system of the European countries using the euro, followed later.

RECESSIONS are the result of reduction in the demand of products in the global market. Recession
can also be associated with falling prices known as deflation due to lack of demand of products.

Effects of Recession:

Bankruptcies
Credit crunches
Deflation (or disinflation)
Foreclosures
Unemployment

Companies in India (especially IT and BPO industry) have most outsourcing deals from the US. Even
our exports to US have increased over the years. Exports for January 2008 declined by 22 per cent.

There is a decline in the employment market due to the recession in the West. There has been a
significant drop in the new hiring which is a cause of great concern for us since a lot of people look
for better opportunities in the west. In India also new hiring was put on hold the salaries of existing
people were cut or not increased.

Airlines faced low seat occupancy rates and losses due to fierce competition and lesser people flying
around the world for business.

The textile, garment and handicraft industry are among the worst affected.
The real estate has also a problem of tight liquidity situations, where the developers are finding it
hard to raise finances.

Jewellery sector's exports reduced by as much as 50%

To make the situation worse the Obama Government refused to bailout to the companies which
gave jobs mainly to people outside the US citizens thus impacting the outsourcing industry.

Arguments:
An industrial slowdown early in 2008, followed by the global financial crisis, led annual GDP
growth to slow to 6.1% in 2008-2009, still second highest growth in the world among major
economies. This means that there was a slowdown in growth but not crisis.

India's fiscal deficit increased substantially in 2008 due to fuel and fertilizer subsidies, a debt
waiver program for farmers, a job guarantee program for rural workers, and stimulus
expenditures. The government abandoned its deficit target and allowed the deficit to reach
6.8% of GDP in FY10.
India escaped the brunt of the global financial crisis because of cautious banking
policies and a relatively low dependence on exports for growth.
Domestic demand, driven by purchases of consumer durables and
automobiles leading to the growth of steel industry, has re-emerged as a key driver
of growth, as exports have fallen since the global crisis started.
The growth in FY10 was at 7.9% and expected to reach double digit growth in the
next 4 years.
Aviation Industry which was the worst hit is expected to hire 8000 new
employees this financial year. IT companies have lifted the freeze on recruitment and
started increasing the compensation.
Sensex went from 21000 to 8700 and back to 17800 levels this shows the optimism
in the Indian economy.