Global Meltdown & Its Impact On Indian

Economy

Global Meltdown
And
Its Impact On Indian Economy

Name:Suvidha Shetty
Roll No. 51
Subject:
Submitted:

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Global Meltdown & Its Impact On Indian
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INDEX
Serial Topic Page No.
No.
1 What Is Recession? 1
2 What Causes Recession? 1
3 Global Meltdown 2
4 Subprime Effect 3
5 The Ground Realities In The 4

US
6 Three Reasons Why The US 6

Faces Recession In 2008

7 GDP Growth Indicating 9

Recession In US
8 Impact Of Recession On India 10
9 Anatomy Of The Economic 11

Depression In India
10 Recession In India: 13
Challenges & Opportunities
Galore

11 Mental Meltdown 22
12 Observations Of The 25
Stalwarts On The Global
Turmoil

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WHAT IS RECESSION?

In economics, the term recession activity lasting more than a few

describes the reduction of a months, which is normally visible in
country's gross domestic product real GDP, real income,
(GDP) for at least two quarters. employment, industrial production,
The usual dictionary definition is "a and wholesale-retail sales”.
period of reduced economic For this reason, the official
activity", a business cycle designation of recession may not
contraction. come until after we are in a
recession for six months or longer.
A Recession is a contraction phase
of the business cycle.
National Bureau of Economic
Research (NBER) is the official
agency in charge of declaring that
the economy is in a state of
recession.
They define recession as
“significant decline in economic

What causes Recession?

 An economy typically expands for 6-10 years and tends to go into a

recession for about six months to 2 years.
 A recession normally takes place when consumers loose confidence in
the growth of the economy and spend less.
 This leads to a decreased demand for goods and services, which in turn
leads to a decrease in production, lay-offs and a sharp rise in
unemployment.
 Investors spend less as they fear stocks values will fall and thus stock
markets fall on negative sentiment.

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Global Meltdown

The global financial crisis, caused by the financial tsunami that had occurred
on Wall Street, has become the front page news in India. The end of 158-
year-old Lehman Brothers is sensational and the same is bound to make the
people wonder if financial institutions in the world, specially, in India are safe.
Since all the countries are financially and economically integrated, it is quite
natural for anybody to be more inquisitive to know about the health of the
financial institutions in their country.
The suddenness with which some of the biggest Wall Street firms like
Lehman Brothers, Merrill Lynch and American Insurance Group (AIG)
collapsed like a house in an earthquake is unbelievable.
As the contagion started moving across the globe, many small and big sized
banks in other countries started suffering on account of liquidity crunch and
countries like Germany and Japan are forced to inject massive sums into their
financial system. The ravage continued with a meltdown in stock market in
almost all countries.

How did this crisis start?

It started with the retail banks lending enormous housing loans to borrowers
with inadequate security and poor credit history. These banks repackaged the
loans as tradable securities and sold them to investment banks, such as
Merrill Lynch and Lehman Brothers.
Inevitably, when these borrowers defaulted, the market for these securities
crashed. Some of the investment banks had considerable exposures in the

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booming property market. When the housing boom went bust, the property
market also collapsed, adding to the losses of these investment banks. Credit
markets have suffered, as the investors have moved their money to safest
investments like treasury bills.
The exotic and arcane financial instruments like Credit Default Swaps (CDS)
also have contributed for the crisis.
The spillover effects had been felt by a good number of financial institutions
throughout the world, stock markets melted and investors started suffering.
For comprehending the events that had happened, it is essential to
understand certain concepts and terms that are in vogue and these concepts
form a part of the causative factor for the Wall Street meltdown.

Subprime Effect

Subprime mortgages are offered to borrowers who typically have low credit
and/or low-income. Interest rates on these loans are usually two to five

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percentage points higher than on prime loans. The idea is that these
mortgages are a way for borrowers who might not otherwise qualify for loans
to buy homes. But this sector has morphed into a classic predatory lending
environment. Stories are emerging of mortgage brokers fudging applicants'
incomes on forms or ignoring it entirely-and rushing through approvals on
loans that have little prospect of getting paid back. For borrowers, these
subprime loans seem affordable at first, but then quickly become more than a
household can bear. Subprime mortgages have grown into an increasingly
large part of the overall mortgage business-accounting for about 20% of loans
originated last year, worth a total of $605 bn.
The Ground Realities in the US

(1)The Role of Brokers

Across the US, an estimated 2.5 million people are in danger of losing their
homes to foreclosure this year as a result of the subprime mortgage crisis.
Day-to-day business of real estate is an eye-watering glimpse of the
industry's slide into anarchy. Dishonesty became endemic in loan
applications. By the end, 70% of submissions to the company (real estate)
from brokers were deceptive. Properties supposedly, objectively, appraised
were spectacularly overvalued. Around half of loans were on homes over-
egged by up to 10%, a quarter had prices exaggerated by 11% to 20% and
the rest were "so overvalued they defied all logic". The industry lost its mind.
It went from borderline stupid to downright insane. The notion of 'acceptable
risk' simply went out of the window. The margins compressed in the industry
and no one was providing for the risks. Seemingly endless list of tricks were
used by brokers to push dubious loans. Many simply withheld information,
such as the fact that a home buyer was getting an additional loan to pay for a
deposit or that a couple, buying on the basis of joint income, was actually
planning to divorce. Others would manipulate figures by knocking up payslips
using desktop publishing programs.

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Members were urged to stick to one broker rather than shopping around
because each broker would check their credit record and, through, the sheer
fact of being officially checked, fragile credit scores often fall. The industry
was barely regulated-in Texas, mortgage salespeople had to be sponsored by
a registered broker. 250 different loan officers were attached to a single one-
man office measuring about one square meter. There was a tremendous
amount of ignorance. Like a drug ring, a hierarchical structure allowed players
to continue passing on risk at a faster and faster pace, without anybody
pausing for thought.

(2)The Role of Credit Rating Agencies

Credit rating agencies that continued to attach high marks to packages of

high-risk mortgages until the mortgage market had begun to collapse in 2007.
"The rating agencies were supposed to be the independent arbitrators, the
umpires."
There are several factors behind the ongoing financial crisis, but perhaps the
most important is that Wall Street's investment banks wield too much power.
Investment banks became vulnerable to the subprime mortgage crisis as they
sold mortgage-backed securities to a number of investors after having
purchased the mortgages from mortgage companies or commercial banks
and transforming them with a bit of financial engineering called securitization,
which involves repackaging various kinds of assets as securities. Adding to
the woes, Moody's Investors Service and Standard and Poor's were known to
have been poorly rating financial products such as collateralized debt
obligations and mortgage-backed securities. Then, so-called monoline
insurers, which sold insurance for both products, went bankrupt. Most
worrisome, however, is that major financial institutions are still piling up losses
from derivative products such as CD Os and CDSs. Accordingly, there is a
possibility that more financial institutions may go bankrupt with additional
losses.

(3)The Role of US Treasury

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The US Treasury has made a dramatic decision to place the Federal National
Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage
Company (Freddie Mac) in conservator ship, with the government taking over
the management. This conservator ship (or we can call it bailout, takeover,
nationalization) was considered one of the most sweeping government
interventions since the Great Depression in 1930s. Fannie Mae and Freddie
Mac, established in 1938 and 1970 respectively, are government agencies
that issue bonds in financial markets and use the proceeds to supply funds to
the mortgage markets. Although Fannie and Freddie are usually referred to
as government agencies or Government-Sponsored Enterprises (GSEs), their
shares are publicly traded on the New York Stock Exchange. They are,
therefore, effectively quasi-private/quasi-public. They own more than $5 mn in
debt and mortgage backed securities. And millions of people have fulfilled the
American dream of home ownership, thanks to GSEs. They are leveraged at
roughly 50 times their capital, compared to about 10 times for typical
commercial banks and 30 times for investment banks. There are also
concerns that Fannie and Freddie have become so large that they wield too
much political influence. The decisive action by the US Treasury was
welcomed by most investors and the central banking community. For
supporters of the bailout, these institutions are too big to be allowed to fail.

Three reasons why the US faces recession in

2008

1)More ripples from the subprime mortgage fiasco

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The most important signal flashing recession is, of course, the subprime
mortgage fiasco. After years of monetary inflation on the part of the Federal
Reserve, individuals and families with poor credit were suckered into low-
down-payment/low-interest adjustable mortgages that simply cannot be
maintained or repaid under current conditions.

Their incentive is to sell the property quickly before their equity evaporates or
the financial institution repossesses it. Yet the massive oversupply of homes
and condos for sale has pushed prices down at a record clip and made
additional foreclosures even more likely. Next year, unfortunately, will be the
Year of the Auction.

The financial institutions have also been punished … well sort of. Various
institutions including hedge funds that hold these poorly performing debt
obligations have been forced (by accounting rules) to 'write down' the value of
these assets, take huge paper losses in the bargain, and pull in their financial
horns.

Thus, any near-term recovery in housing must now fight a record supply
availability, falling prices, higher insurance costs and restricted credit … a
near-term impossibility in my view.

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Moreover, the slowdown in residential and commercial construction will send
secondary ripple effects throughout the economy. Laid-off construction
workers don't spend money. Construction and home furnishing suppliers sell
less output and make fewer investments. Even local governments will be
pinched by declining property-tax assessments and fewer developer fees.
Things are likely to get worse before they get any better.

2)Sky-high crude oil is near-term recession risk

The second major factor indicating a near-term recession is the sky-high price
of crude oil and refined product. Pushed upward by world-wide speculative
Middle East war fears and increases in demand (especially from China),
increasing energy prices act as an inflationary 'tax' on domestic production
and consumption throughout the market economy.

Higher costs of production will lower profits; higher prices will reduce some
consumption. The only good news here is that any substantial economic
slowdown in 2008 will eventually moderate the price of oil and other
commodity prices as well.

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3)Dollar devaluation is real wild card

The third factor in the current recession scenario — and the real wild card —
is the continuing decline in the value of the dollar in international money
markets caused by our Iraq blunder and the Federal Reserve–generated
oversupply of dollars. Some economists would argue that a devalued dollar is
good for US exports, and thus positive for the economy as a whole. I disagree
for three reasons.

First, the bulk of crude oil purchases takes place in dollars; a falling dollar
translates into still higher crude oil prices. Second, the US dollar is the major
reserve currency of the international monetary system and dollar-paying
investments (such as US Treasury bills and bonds) are held in massive
amounts by foreign banks and governments. Dollar devaluation makes these
investments less attractive and any disinvestment in these areas would
sharply drive bond prices down and increase interest rates.

The third reason why dollar devaluation makes recession more likely is that it
effectively prevents the Federal Reserve from pushing US interest rates much

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lower. Any additional Fed easing (inflation) would be seen as a signal of even
further future dollar devaluation and even higher dollar prices for oil.

Unfortunately, we will not be able to 'inflate' our way out of this recession this
time. We will simply have to take our lumps and let market forces liquidate the
bulk of the malinvestments caused by the unprecedented Greenspan money
bubble. This liquidation process will not be pretty but it is necessary to restore
a sustainable economic recovery in the years ahead.

GDP growth indicating Recession in US

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Impact of recession on India

1.Reduced liquidity in the Indian economy

2. Reduced industrial output
3. Reduced job opportunities
4. Stock Market is lingering in the bottom
5. Real estate market has started to take a beating
6. Inflation has increased
7. GDP has come down and the GPD forecast for the next two quarters are
only average.

A slowdown in the US economy is bad news for India because:

 Indian companies have major outsourcing deals from the US.

 India's exports to the US have also grown substantially over the years.
 Indian companies with big tickets deals in the US are seeing their profit
margins shrinking.

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Anatomy of the economic depression in India

Share Market

 More people have sold the shares in the Indian share market than they
bought in the recent weeks. This has added to the fall of sensex to lower
points.
 Foreign investors have pulled out from stock markets leading to heavy
losses in stocks and mutual funds..
 Stock broking houses are laying-off people.
 Because of such uncertainty many people have started saving money in
banks rather than investing.

IT and Real Estate Sector

 The key challenges faced by the industry now are inflation and the
psychological impact of the US crisis, leading the companies to hit the
panic button.
 Bonuses, perks, lavish parties, and many other benefits are missing as
companies look to cut cost.
 India's IT export growth is also slowering down.

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 One of the casualties this time are real estate, where building projects are
half-done all over the country and in this tight liquidity situation developers
find it difficult to raise finances.

Industrial sector

 Government and other private companies are reluctant in starting new

ventures and starting new projects.
 Projects that are halfway to completion, or companies that are stuck with
cash flow issues on businesses that are yet to reach break even, will run
out of cash.
 Car, bike & truck sales down.
 Steel plants are cutting production.
 Hospitality and airlines are hit by poor demand .

Layoffs and Unemployment

 Hundreds of workers have lost jobs in diamond jewellery, textiles and

leather industry.
 Companies in IT industry have stopped hiring and projected lower
manpower need.
 Firms attached to the capital market are laying off people and large
companies are putting their future expansion plans on hold.

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Recession in India: Challenges & Opportunities

Galore

US recession may be a boon for Indian offshore software companies

The impact of recession is higher to small and medium sized (SMEs)
enterprises whose bottom lines get squeezed due to lack of spending by
consumers

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SMEs in the US are under severe pressure to increase profitability and
business margins to survive. This will force them to outsource and even have
M&A arrangements with Indian firms.
India is going to be a great beneficiary of this trend which will minimize the
impact of the US recession on Indian industry
By March 2008, India had received SME outsourcing deals worth $7 billion
from the US as against $6.2 billion in the previous year.

The global economic recession has taken its toll on the Indian economy that
has led to multi-crore loss in business and export orders, tens of thousands of
job losses, especially in key sectors like the IT, automobiles, industry and
export-oriented firms. It has also shaken up the investment regime, which is
being restructured, with the telecom sector likely to be declared off-limits for
foreign investors.

Although the next two years or more are expected to usher in a difficult phase
for the national economy, there are silver linings still amid the dark clouds
looming on the horizon. The stimulus package unveiled by the central
government should boost exports, especially to the Gulf states, which are still
awash in petro-dollars, even if the oil prices have plummeted from $142 to
$42 within six months.

Before the crisis erupted, there were more than 1500 software firms in the
country, while the employee base of the sector had grown to 553,000 (from
415,000 in FY 06). More than 1300 IT companies were operating in
Bangalore alone.

This sector has been adversely affected by the global crisis-a fact
acknowledged by Bangalore-based Infosys Technologies Co-Chairman,
Nandan M. Nilekani. He believes that even though the tech sector would see
the impact of the economic slowdown in terms of growth rate, the IT industry
will continue to grow and recruit manpower.

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As for the IT industry, Nasscom had initially projected a 21-24 per cent growth
rate for the current financial year, but the software association revised it
downward in the wake of the global financial meltdown. Nasscom will
complete the ‘review process’ of the FY09 export growth targets, sometime in
December.

Similar was the projection of Infosys, when it lowered its dollar revenue
guidance for FY09 by six percentage points. It now expects revenue to be
between $4.72-4.81billion. “There is a global scenario which is
unprecedented and it will have an impact on everyone. But the IT industry
has demonstrated time and again that it is resilient enough to deal with these
challenges,” said a Nasscom spokesman.

But for now heads continue to roll in the IT sector. In February this year, Tata
Consultancy Services (TCS) had asked about 500 employees to leave due to
non-performance. Patni Computer Systems (PCS) has already laid off around
400 employees, or nearly 3% of its 14,800 workforce, on the same ground,
while IBM Corp. followed suit in the case of 700 freshers. Wipro, the country’s
third largest IT exporter, is considering firing 3,000 employees over
performance-related issues. However, this is yet to be confirmed by the
company.

More trouble seems to be in store for this sector. This time the news is that
the relatively liberal visa regime in the US that enabled IT services companies
to send employees on client work is under review following the job losses in
the US. The United States Citizenship and Immigration Services (USCIS), the
visa controlling agency, is tightening the screw on screening and issuing L1
visas and L1 extensions.

L1s are three-year visas meant for intra-company transfers, with some 50,000
Indians estimated to be currently in the US on these visas. About a third of
them are coming up for renewal this year for a further two-year extension.

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Nasscom has said that the proposed legislation by the US House of
Representatives to restrict the use of L1 visas by Indian companies will affect
the Indian IT industry in the long term, as about 10 per cent of Indian software
professionals in the US avail themselves of L1 visas.

Away from IT firms, the IT-Enabled Services sector may also face the crunch,
since a majority of Indian IT firms derive 75% or more of their revenues from
the US. Thus, if the Fortune 500 companies slash their IT budgets, Indian
firms could feel the heat. The sector should review its priority and focus on
product innovation (as opposed to merely providing services). If this is done,
India can emerge as a major player in the IT products category as well.

As a result of putting all their eggs in one basket, developers, consultants,

trainers, team leaders have all become victims of the recession facing the
IT/Ites sector. A fresh entrant-the bloggers-are in for trouble as well. With
corporate budgets getting trimmed, professional bloggers may be the next to
come under the hatchet.

Advertisements, sponsored listing and ‘pay per post’ have been affected by
the slowdown. For Pranav Dharma, a part-time blogger, the recession has
shrunk ad contracts. “I was running an ad campaign on my blog for the past
three months. When time came for extending the contract, the advertiser said
they are re-evaluating the contract campaigns due to the slowdown.”

However, business process outsourcing firms believe they will be less

impacted by the global crisis than their IT counterparts, since they are
involved in facilitating day-to-day operations. Avinash Vashistha, MD of
technology consultancy firm Tholona, says the slowdown impact on BPOs will
be limited. “BPOs are about core transactions and day-to-day functioning and
clients will find it tough to delay these projects or make cuts in them,” adding
that applications support and maintenance and project implementation
services of IT may be slashed by over 30 percent.

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Currently, processing services account for 60% of the industry, while the rest
comes from core services (business analysis, financial planning etc). Last
year the ratio was 70:30 and it’s likely to be in the 50:50 range next year.
Also, the share of voice-based services has fallen from 95 % two years ago to
80% now and is expected to slide further. India will not be much affected,
since it accounts for only 5% of the global voice market.

Industry-wide indications after September are also uniformly gloomy. There

are reports of significant declines in output of automobiles, commercial
vehicles, steel, textiles, petrochemicals, construction, real estate, finance,
retail activity and many other sectors. Exports fell by 12 percent in dollar
terms in October, while core industries slowed to 3.4 % during the same
month from 4.6 % a year ago.

Giving his assessment, Jasjit Sawhney, CEO, net4 India Ltd., told the SME
Times: “The major impact of recession or economic slowdown is with the
small exporters and importers in the country as most of them are facing the
problem of heavy duties.”

Continuing further, he observed: “The US slowdown will immensely hit the

mid-sized IT companies and also the big players to some extent. On the
higher end, you have scenarios where people are cutting back on contracts.
They are reducing the fees per manpower in their contracts.”

A survey of 125 companies by the commerce department in New Delhi has

revealed that Indian companies lost export orders worth Rs.1,792 crores
during August-October 2008 and were forced to lay off 65,000 workers.

The manufacturing sector, especially the auto industry, has also sustained a
severe hit. As a result, the global credit rating agency, Standard &Poor’s
(S&P) has downgraded Tata Motors rating for the foreign market. The
company witnessed a 30 % drop in sales in India compared to last year.

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The textile giant, VF-Arvind, has started releasing employees, especially
from the imported brands section, as there are few takers. Around 80
employees have been pink-slipped under its downsizing programme. An
offshoot of this impact is being felt on warehouses, which are being vacated
due to inventory control.

Along with warehouses, other sectors of the real estate market have also
tumbled, with property prices dropping by 10-15% in addition to various
incentives that are being offered. For NRIs, this is the prime time to invest in
the real estate market, which is bound to rally once it gets over the hump.

On the educational front, bank officials point out that there is no impact yet
on the grant of loans for higher education. Students of IIM, IIT, medicine,
engineering and other professional courses continue to receive educational
loans repayable after the student has completed his/her course.

The tourism sector has been affected, too. Hotels have already reported 20-
25 % cancellation from international tourists who were booked to visit over
the next one year. Airlines, including low cost carriers (LCCs), may lower their
fares by 10-12 % to extend the benefit of lower fuel prices to the customers
and rein in the sagging demand.

With hotel occupancy levels and room rates dipping by 20 % and 50 %

respectively in just two weeks, the sector is clamoring for a substantial cut in
luxury tax slabs. The industry also wants that the luxury tax on rooms be
charged on the actual rates rather than on the printed rack rates. According to
market sources, guests are paying 20-25% higher room rates because of this
tax structure.

The reduced purchasing power of Indian consumers in the current situation

has revved up competition among shopping malls. They now have to step up
their ad spend along with discounts to lure consumers who have restricted
their shopping list to essentials, such as food and other consumables. After

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all, the purchasing power of 350 million Indians cannot be glossed over.
Together with the package of incentives offered by the government to kick-
start the economy, good management practices and self-imposed check on
profiteering, the retail sector can hold its own.

However, for the time being, the growth of this sector will be stunted as
overseas investors will be on guard for two reasons. The financial meltdown
has burnt a hole in millions of Indian pockets. With their shopping budget on a
tight leash, one should not expect overseas malls to make forays into the
Indian market anytime soon. The second important factor is that overseas
retailers, especially from the US and other western countries, would not like
to take the plunge given the fact that the terrorist attacks in Mumbai on
selected targets were politically motivated.

Prior to the terrorist attacks, India was in a comfortable position with Foreign
Direct Investment flows shooting up by a whopping 124% during the first five
months of 2008-09 to $14.6 billion. Despite the global financial turmoil, it is
set to surpass the FDI target of $35 billion during 2008-09. “The country will
achieve about $35-40 billion in the current fiscal. The first quarter has crossed
$ 10 billion. Last year, it was $24 billion for the entire fiscal year,” a senior
official in Department of Industrial Policy and Promotion (DIPP) said.

The sectors that attracted maximum FDI inflows in 2007-08 were services,
telecom, housing, construction activities, real estate, electrical equipment,
computer software and hardware. The year before, India ranked fourth after
China, Hong Kong and Singapore as a major investment destination in Asia.

The situation on the ground has since changed in the aftermath of economic
recession and the current security threat. The government has already
unveiled a Rs.300,000 crore package to pump prime the economy with
specific measures for various sectors.

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This amount is to be spent on revitalizing stake holders such as exporters,
housing, infrastructure and textiles. A four-percent cut in Value Added Tax has
also been announced to help the corporate sector in general. This apart,
additional allocation has been made towards various incentives for exporters,
guarantee of export credit, full refund of service tax to foreign agents and
refund of service tax under the duty drawback scheme.

Given the market turbulence that will grip the world economy in 2009, there is
no prospect of a quick turnaround in India. Broadly, the 4% relief on ex-
factory cost is likely to result in ex-showroom price reduction in the range of
Rs.8,000 to Rs.45,000 for different passenger vehicles (cars and SUVs).

Similarly, prices of cars, two-wheelers and commercial vehicles are set to

come down by around 3.5 percent due to duty cut announced by the
government. Almost all the major manufacturers, including Maruti, Hyundai,
M&M, Tata Motors, Ford, Skoda and TVS said they would be passing on the
benefits of the reduced duty to customers immediately.

The techno-savvy group will also benefit as the IT hardware industry has
decided to pass on the 4% across-the-board excise duty cut to consumers
which will help bring down the prices of IT products like TFT monitors, printers
and projectors as well as computers and notebooks.

With this, desktops and notebooks will attract 8% excise duty, while all other
hardware equipment would attract 10%, according to MAIT executive director
Vinnie Mehta.

In the construction sector, ACC Ltd., the country’s biggest cement

manufacturer, slashed prices by up to Rs.5 on account of reduction in cement
prices by 4 %. The demand for appliances, consumer electronics, apparel,
and other products is still huge and can be tapped by adopting appropriate
pricing strategies. This should be possible thanks to the 4 % cut in excise
duty and subsidy on export credit.

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Other measures in the offing include easy access to the credit market for
exporters, textile manufacturers and farmers collectively to the tune of
Rs.9,000 crore. Of the total outlay, a Rs.4,000 crore line of credit will be
extended to the National Housing Bank (NHB) and a similar allocation for the
Exim Bank. The remainder of the rescue package will be utilized for the relief
of farmers and infrastructural projects.

Besides these measures, a public-private partnership (PPP) could be

launched to tap the investment potential in various sectors. Health tourism is
one of them. In the past, most of the patients coming to India were from the
SAARC region. However, in the aftermath of Nov. 26 terrorist attacks, this
catchment area will dry up necessitating a new market. There needs to be a
shift in priority towards the Gulf states, with more focus on medical tourism
combined with the pleasures of sun, sea and sand plus visits to spas and
wildlife sanctuaries as part of the itinerary.

These nationals are already coming to India for manpower recruitment. Air-
India and other airlines operating on the Gulf sector should coordinate with
the Indian diplomatic missions in the Gulf states, so that applicants going
there for visa endorsement could also be handed tourist brochure in Arabic
along with their passports. This facility should also be available at the offices
of national carriers of India and the GCC states.

It is important to remember that while upscale Gulf citizens prefer the US,
western and some West Asian countries (UAE, Egypt and Lebanon) as their
tourist destination, only the budget-conscious group comes to south Asia.
Malaysia has emerged as a hot spot for Arab tourists due to its lush greenery,
spas and overall picture postcard look, which they rave about.

Given the availability of talented professionals along with the added attraction
of the cheap cost factor, a coordinated drive could go a long way in bringing
more Gulf tourists to India, especially for health and eco-tourism. It is worth

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Global Meltdown & Its Impact On Indian
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noting that whereas a heart valve replacement surgery would cost $10,000 in
Thailand, $12,500 in Singapore, $ 200,000 in the US and $ 90,000 in Britain,
in India it would just cost $8,000.

As for overseas investment, the remittance channels are beginning to

diversify. Apart from FDI, third countries like Mauritius and Cyprus are serving
as conduits for channeling foreign investment into India. Mauritius thus
emerged as the top investing country in India during 2007-08, with inflows
from there more than doubling to $1.6 billion from $578 million in 2006-07.
The total FDI inflows into the country in April-June period amounted to
$10.073 billion, nearly $1 billion more than the total in 2005-06.

As recently as July this year, the IMF foresaw the world economy growing at
3.9 percent in 2009, advanced economies at 1.4 percent and developing
countries at 6.7 percent. By early November (just four months later) these
forecasts had been slashed down to 2.2 percent, minus 0.3 percent and 5.1
percent, respectively. The official estimates of India’s GDP growth for the first
two quarters of 2008/9 stayed above 7.5 percent, with future projections
indicating the same growth trajectory.

According to the Executive Summary of Angel Broking’s “India Education

Sector Report2008″, “India’s GDP has grown at a compounded grate (CAGR)
of around 8.5 % over FY 2003-08, growing at over 8% in four of the five
fiscals. GDP growth in FY 2007 accelerated and came in at an impressive
9.6%. Even for FY 2008, India logged in GDP growth of 9%, commendable by
any standards. This makes it a hat-trick for India’s GDP, which has now
recorded in excess of 9% GDP growth in each of the last three fiscals.”

Yet, the report expresses dismay over India’s literacy rate of just 61%, ranking
the country “a disappointing 172nd. In fact, there is a huge requirement of
talent in the field of hospitality; IT services, retail, financial services and
aviation, to name a few. We believe India will have to significantly gear up its
educational infrastructure to meet this demand.”

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Global Meltdown & Its Impact On Indian
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But challenges still remain. One of these is the massive scale of corruption
that has diverted crores of tax payer’s money into the pockets of corrupt
politicians and officials. This has strained the economy, tarnished India’s
image abroad, and sapped the investor’s confidence.

Another problem is the sluggish bureaucracy that taxes an investor’s patience

to the hilt. There is no active single window clearance mechanism in place
where business decisions could be expedited. Therefore many potential
investors have been moving away to greener pastures in the country or
outside. Bangalore, which once served as a magnet for investors due to its
operational efficiency, among other factors, has nose-dived on several
counts, including poor infrastructure, traffic bottlenecks, culture of corruption
and casteism. It is losing out to Andhra Pradesh and Tamil Nadu as the
country’s IT hub.

If these challenges represent one side of the coin, there are opportunities
galore on the other. The stimulus package that the Centre is offering to the
state governments presents an exciting opportunity to the private sector to
resume exports to the Gulf states as Indian exporters are being offered credit
facilities.

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Global Meltdown & Its Impact On Indian
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MENTAL MELTDOWN

Shrinking jobs, pay cuts and loss Vidyasagar Institute of Mental

of perks owing to the recession Health and Neurosciences.
have taken a heavy toll on the
mental health of a large section of
India’s high-profile workforce.
“Since August-September there
has been a four-fold increase in
the number people seeking help to
handle their emotional and
psychological problems. Typically,
the majority of those seeking
psychiatric help are in the 25-30
age group, people who are
comparatively fresh in their careers
and have been used to fluid,
vibrant lifestyle,” says psychiatrist
Dr Jitendra Nagpal, a consultant
psychiatrist with the Delhi based

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Global Meltdown & Its Impact On Indian
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Nagpal, who has been working for more than a decade in the area of
community mental health care, says between August and December he
treated five to seven cases a week for work-related stress. The number went
up to 10 a week in January. His patients had either lost their jobs or held jobs
but had lost the motivation to work in the absence of incentives.

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Global Meltdown & Its Impact On Indian
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The symptoms, says Nagpal, were insomnia. Loss of appetite, irritability,
withdrawal behavior, long spells of silence, lack of communication with friends
or family members and absenteeism. ‘These people are not typically mentally
ill as, medically speaking, they are are not yet cases of depression;but could
fast degenerate cases if not detected and treated in time,’he says.

Although no empirical data are available on how many people affected by the
recession are suffering from work related stress, the increase in number of
cases recently is a matter of concern and both the organizations and the
families need to be alert and sensitive to such behavior among their
members.

Nagpal says the largest number of cases were from the stock market, call
centres, investment banking and other financial services sector. “These
people find themselves unable to face the realities of failure, and when their
self esteem goes down they develop a fear for work. They feel no excitement
about getting up in the morning or even doing routine things,” he says.

Nagpal says a ritual-based routine – yoga, meditation, any form of worship or

regular exercise can help cope with stress better because of the inner
strength these activities provide. “Our management guru’s should face on
giving inherent life skills to youngsters in order to mould them into stronger
individuals. They need to be taught to handle failures as failures are a part of
life,” says Nagpal.

The silver lining is that people are realizing the need for professional help to
tackle emotional stress and coming forward to seek such help. “Indians have

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Global Meltdown & Its Impact On Indian
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inherent strengths and resilience to deal with any crisis,” says Dr. B.N.
Gangadhar, head of psychiatry at the Bangalore-based National Institute of
Mental Health and Neurosciences.

He says there is no cause for alarm although there is an increase in job

related stress. “People are coming for counseling and treatment, but there is
nothing much to worry,” Gangadhar says.

Incidentally, Bangalore, the information technology capital and hub of the

quaternary sector has reported the highest number of suicides in India in the
awake of the crisis.

Sense of isolation and loss of face in society cause a lot of distress

During a financial crisis, isolation a car pool. Small measures can

and concern about one's status in
the society and loss of reputation
are a big concern. These
precipitate depression among
speculators and entrepreneurs
who may have suffered big losses.
I would say that during a financial
crisis, the best approach is to be
honest to yourself, accept and
confront your problem, consider
the worst case scenario and then
share your fears with trusted and
loved ones. Given a crunch, the
solutions are quite obvious. Scale
down your expenses and tone
down your lifestyle. For instance, if
you live on Marine Drive move to
say Mira Road. If you are used to
a gas guzzling luxury car move to
help in a big way. The most stress
is brought on by fear of losing face
among peers, family and in the
community. This can induce
severe panic reaction. Those who
have experienced adversity in the
past do a better job of coping with
stress. But others who may not
have braced themselves for a
disappointment may not be able to
handle it and go over the edge. In
fact, people who don't mind
playing the market like a gamble
and in full awareness of what it
entails, cope very well. I would
suggest that if you are feeling as
though you have no control over
your life, seek help from within the
family and outside. Exercise is a

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Global Meltdown & Its Impact On Indian
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great stress-buster, it always
works, says Dr. Harish Shetty.

--Harish Shetty. Psychiatrist

Observations of the STALWARTs on the global

turmoil
as risky in some situations, but if
we are indeed on the brink of the
• Mr. Manmohan Singh
worst downturn since the Great
Prime Minister Depression, the risk may be worth
“A coordinated fiscal stimulus by taking,” he added.
countries that are in a position to
do so would help to mitigate the
severity and duration of the
recession”
“It would also send a strong signal to
investors around the world. Resort
to fiscal stimulus may be viewed

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Global Meltdown & Its Impact On Indian
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MONTEK SINGH
AHLUWALIA
Planning Commision
Deputy Chairman, Institutions that we have are not
capable of dealing with the
problem (Global financial melt-
down). Let us restructure these
institutions. We have got a huge
crisis, and the way institutions
function needs to be rethought.
MONTEK SINGH AHLUWALIA

• Pranab Mukherjee

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Global Meltdown & Its Impact On Indian
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External Affairs & Foreign Minister

India does not suffer any lack of

self-confidence in this crisis but
feels that it can turn it into an
opportunity. With an investment
rate which has until recently been
close to 40%, and a savings rate
close to 38% of GDP, I feel that
Pranab Mukherjee
India can face external factors with
Not wearing ideological goggles
reasonable confidence.
— of India is today less socio-
The current crisis is increasingly
economically unequal than many
being recognised as the result of a
of the western developed
flaw in the ideology and model of
countries, as reflected in the Gini
growth, which were hitherto
co-efficient, an index used by the
considered sacrosanct. This failure
World Bank to measure it. A high
in the west is of such a magnitude
rate of growth and developed
that governments cannot wish
institutional and physical
away their own responsibility. With
infrastructure prepares a vast and
a crisis in the financial sector, the
diverse society like ours better
role of the governments in the
than other countries to face the
developed countries and
current financial crisis, even
elsewhere will only increase.
though we should remain alert to
its future course.

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Global Meltdown & Its Impact On Indian
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• Sunil Bharti Mittal

Chairman & Managing
Director, Bharti Group

“The present crisis can be

converted into an
opportunity
to gain a step or two to
Sunil Bharti Mittal overcome competing like
China.”

• Deepak Parekh Chairman, HDFC

The US subprime crisis may not

have a direct impact, but likely to
hit Indian market in various other
ways. We have not been hit by the
crisis as our loan books are good.
As the crisis widens in the US
companies, including outsourcing
units and IT enties, may be
affected. The good part of the
story is unlike China, which had an
export oriented economy, the
Deepak Parekh
Indian economy was based on the
domestic market.

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Global Meltdown & Its Impact On Indian
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• KV KAMATH
MD & CEO, ICICI BANK
Md & CEO, ICICI bank
because of country’s partial
insulation to global economic
trends. I had expected a lot of
pain, and did not see much. There
is too much of resilience in Indian
industries, unlike their
counterparts in other countries.
KV KAMATH
There is a strong likelihood that
The world economic crisis did not
the Indian industrial sector may
hit Indian industries with the same
witness some setback.
impact as it did elsewhere

• OP BHATT
Chairman, SBI
If there is a slowdown in asset
growth and no treasury income to
make up for it, the problem for
Indian banks would get
compounded. Financial experts
could not predict the impact of the
subprime crisis. A proactive
treatment of risk is vital. We need
to be watchful on the sharp rate of
assets build-up in the banking
sector, as history says NPAs tend
to go up.

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Global Meltdown & Its Impact On Indian
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• ADITYA PURI

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Global Meltdown & Its Impact On Indian
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Global Meltdown & Its Impact On Indian
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MD & CEO, HDFC

Our banking sector is strong and functioning well, it is

secure and profitable, oil & commodity prices and inflation
have come down, 60% of our GDP is domestic
consumption and two fiscal stimulus packages are in
place and they have proved to be effective as per my
study. We are better placed than the rest of the world. We are going to grow
at 5.50-7%, when many countries may witness marginal or no growth.

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