GLOBAL FINANCIAL CRISIS AND INDIA: FOR UPSC AND BPSC MAINS EXAM.

NOTE:- THE SOURCE OF DISCUSSION IS BASED ON ECONOMIC SURVEY AND BUDGET OF INDIA, AND VARIOUS REPORTS AVAILABLE ON INTERNET.

• What is the global financial crisis, why does it seem from the perspective of India's financial system?

Any unwanted occurrence in the financial system which leads to the downfall of financial system, which hurts all around the world's financial system is widely spelled out as global financial crisis.

There were two prominent examples, first one is the great depression of  1929, which was the worst downturn in the economy and lasts from 1929 to 1939, and Second is the financial crisis of 2007-2008, which is called the global financial crisis.

here, we deal with India with respect to the global financial crisis which has taken place in  2007- 2008.   

Thinking of global agencies- due to the financial crisis, may global agencies tried to predict the impact, which was going to hurt many large and small countries.

• In 2009-10, the IMF's forecast was a global recession with negative growth.
• WTO had forecasted that world trade, which was going to virtually collapse in the second half of 2008.
• world's major exporters, such as Germany, Japan, China, etc. nosedive by approximately 35% in the last quarter of 2008.
• some reports said that it becomes worse for the USA and Japan.

Factors that apprehended the Indian economy and permeated through three channels- 1. The financial sector, 2. Export, 3. Exchange rate.
Financial sectors include the banking sector, equity markets, external commercial borrowings, and remittances.
 except for ICICI bank, which was partly affected, all banking sector remain intact, because they were no overly exposed. The ICICI was managed to scotch because of its strengthened balance sheet and timely intervention by the govt. , which on one hand virtually guaranteed its deposit.
Talking about equity market, one report said that, it was declined by nearly 59-60 % in the index and delighting off about UDS 1.3 trillion in market capitalization since January 2008. and due to this fall in the index, foreign investors withdrew these funds in order to strengthen the balance sheet of their parent companies. this incident finally caused the rupees to depreciate, raising the cost of exercising foreign loans, to match with this raising costs domestic banks tried to raise the higher interest rate, which consequently affected India's financial system.
In gulf countries and west - Asian countries, greatly suffering from the decline in oil prices, which resulted in the decline in remittances from overseas of  Indian.   
EXPORT of Indian goods such as garments, textiles, leather, handicraft, and auto components, by one report it is estimated that the decline of 21% in Feb. 2009.
Due to the crisis at the global level, the Indian rupee has come under pressure with the outflow of portfolio investment. higher foreign exchange demand by Indian entrepreneurs, seeking to replace external commercial borrowing by domestic financing, and the consequent decline in the foreign exchange reserve, this happened because the current account was in deficit, and capital account was also in deficit for the third quarter in 2008-2009, which resulted further drawing of foreign exchange reserve would put downward pressure on exchange rate.