Monetary Policy of India During Recession

The Indian economy following the 1991 crisis swiftly moved away from central planning economy towards market-based economy with the government having less intervention and control. As a result, companies were operating in what is called emerging

Financial Crisis of 2007-2008 originated in the United States spread to the financial systems of many other countries, including CIS countries, by means of the domino effect. Bankruptcy of one of the largest Americans Bank, Lehman Brothers Holdings PLC, in someway was a launcher of this global crisis the scope of that can be compared with the Great Depression of the 30s of the last century. No one could have even believed that a crisis in the local market of subprime mortgage loans in the USA would have such enormous affect on the financial systems over the world and crash banking sectors of many countries one by one.

The financial crisis of 2007–2008, also known as the Global Financial Crisis and 2008 financial crisis, is considered by some economists such as Nouriel Roubini, professor of economics and international business at New York University, Kenneth Rogoff, professor of economics and public policy at Harvard University, and Nariman Behravesh, chief economist and executive vice president for IHS Global Insight, to have been the worst financial crisis since the Great Depression of the 1930s. All of them agreed that this is a “one in fifty years event”, however the latest Great Recession is not a typical cyclical recession of the World Economy and no doubt will last for more that usual two years (Business Wire, Reuters). The crisis played a significant role in the failure of key businesses, declines in consumer wealth estimated in trillions of U.S. dollars, and a downturn in economic activity leading to the 2008–2012 global recession and contributing to the European sovereign-debt crisis. (M. N. Baily, D. J. Elliott, 2009). So what are the cаuses of this crisis? Mаny factors dirеctly and indirectly caused the Great Recession, with expеrts plаcing different weights upon pаrticular causes. Major cаuses of the initial sub-prime mortgage crisis and following recession include: Internаtional trade imbalances and tax lending stаndards contributing to high levels of dеveloped

Kumar (1996) compares trends/fluctuations in key macro-economic variables in India pre and post 1991, both before and after initiation of new Indian economic policy in '91. These reforms included, amongst other things, the opening up of the Indian economy for international trade (prior to this India was a socialist state not involved in these markets) plus investment and heavy de-regulation processes. These particular changes to this policy allow for great insight into the impact of de-regulated, international capital trade on previously effective macro-management. He observes that this new economic policy increased economic instability which facilitates speculative activity, particularly resulting from financial sector liberalisation and the opening up of the economy. He adds that the observed increased volatility in economic fluctuations is a result from state intervention under these new economic policies that have reduced policy effectiveness. To quote: "The NEP not only lay greater stress on market forces but on opening up of the economy to foreign capital. This imposes constraints on policies since government cannot control the external environment which is governed by international finance capital- a force far more powerful than the Indian state hence able to dictate to it". He argues that since the interest of

Around the world the effects of the crisis due to globalization are evident and the implications of globalization can be seen with much more clarity as many major financial institutions abroad also invested in mortgage securities and collateralized debt obligations. This like in the us lead to bank failures and bailouts in order to stabilize the markets that had been badly damaged by the financial crisis. Despite the efforts to stabilize the markets the damage to the economies of the world had been done and efforts of governments and central banks to stimulate their economies were

The world economy has faced two major financial crises in its time and their effects are still rippling through the world economy till now. The Great Depression of 1930s had a worldwide economic crisis effect that led to a widespread unemployment, a halt in industrial production and construction and a decline in stock prices. The world economy barely came out of the effects of the Great Depression and was performing fairly well when it again faced another financial crisis of the 2000s.

There have been few financial crises in the United States. The Global Financial Crisis of 2008 to 2009 was the most recent and before that was The Great Depression of the 1930s. The Global Financial Crisis actually began in 2007 when prices of homes tanked. It not only affected the U.S. but it also affected economies overseas. The entire investment banking industry, some of the biggest insurance companies, enterprises government used for mortgage lending, top mortgage lenders, the largest savings and loan companies, and two of the largest commercial banks were many of the financial sectors affected by the crisis. “Banks stopped making loans, share prices plunged throughout the world and most of the world plummeted into a recession” (The Financial Crisis of 2008: Year In Review 2008,” 2009, para. 1).

Shah (2010) stated that the global financial crisis which has been brewing for a while has really started to show its effects in the middle of 2007 and into 2008. It started with the default of the subprime housing loans in the United States when its housing bubble burst. It caused a great impact across the globe that first struck down major financial institutions, first in United States and then in Europe, that were directly exposed to the mortgage default risk.

When analyzing causes of the global financial crisis and its specific symptoms, it is clear that the deepening of globalization processes and high level of internationalization of the world economy determined the significant losses of national financial systems and slowed down their development.

According to the specialists, there are many reasons for this global financial crisis. We try to focus some prime reasons behind this

This paper will discuss the goal of monetary policy and its impact on the performance of the economy as it relates to such factors as inflation, financial yield, and business. Monetary policy affects all kinds of monetary and financial decisions individuals make in this nation, whether to get a loan to purchase another house or car or to start up a company, whether to expand a business and whether to place savings in a bank, in bonds, or in the stock market. Furthermore, because the U.S. is the largest economy in the world, its monetary policy also has significant monetary and financial effects on other countries.

There are important differences between the financial crisis that started in the United States in 2008 and the current economic crisis in Europe. Discuss these differences.

In 2013 the total exports for India was at $313.2 billion whereas the import stood at $467.5 billion (CIA, 2014). India followed the Adam Smith model producing only what it was efficient at and imported the rest. There started a reversal in capital inflows which hit the export demand and posted a crunch in the domestic markets leading to a decline of more than 2% in India’s GDP in the fiscal year 2008-2009 (Kumar & Vashisht, 2009). In 2008 India was already experiencing a high inflation rate, which reduced expenditure in the country. To address the crisis and its affects the Indian government and the banks introduced fiscal stimulus and relaxed monetary policies in order to boost domestic demand. The market interest rates increased to 20% and above suddenly. India had received a fiscal stimulus of $80 billion injected into the economy to ensure liquidity. India was loosing badly on FDI’s and remittances. During 2008, India’s FDI inflows experienced a negative growth of 2% (Kumar & Vashisht, 2009). Remittances also are a major part of the capital inflows of the country, in 2008 the remittance inflow declined by more than 29% (Kumar & Vashisht, 2009) as every country first wanted to protect jobs of its home citizens and there was a severe lay off. Exports to USA is a major component of India’s GDP. After a sharp decline in the demand from the US, India had to lay off more than 300,000 workers instantly. There was a decline in exports of India by

India survived near-crisis situations twice in the 1990s. How did internal and external constraints shape that country’s ability to respond to the crises? This article argues that India’s success can be attributed to four sets of decisions taken during the period 1991–1997: devaluation, involvement of the IMF, partial liberalization of the domestic financial sector, and gradual opening up of the external sector. The article analyzes the options, political opposition, and eventual outcomes for each set of decisions. India’s ownership of its reform program helped set the pace of reform, while close interaction between technocrats and the IMF added

The financial crisis, which began in late 2007 in US, went on to affect Europe and Asian counties. The economists were of the opinion that it would not affect the developing nations like China and India. Moreover as per the economists, these countries have already adopted reforms, which would make them withstand such crisis, and hence would be able to sail through it. But that was not the case. We would be comparing the economic policies of these countries’. Both the countries’ have high economic growth rate since last decade or so and are rapidly raising their footprint in global scenario.