The financial crisis from 2007 to the present is considered by many economists to be the worst financial crisis since

the Great Depression of the 1930s.[1] It was triggered by a liquidity shortfall in the United States banking system,[2] and has resulted in the collapse of large financial institutions, the bailout of banks by national governments, and downturns in stock markets around the world. In many areas, the housing market has also suffered, resulting in numerous evictions, foreclosures and prolonged vacancies. It contributed to the failure of key businesses, declines in consumer wealth estimated in the trillions of U.S. dollars, substantial financial commitments incurred by governments, and a significant decline in economic activity.[3] Although there have been aftershocks, the financial crisis officially ended in 2008.[4][5] Many causes for the financial crisis have been suggested, with varying weight assigned by experts.[6] Both market-based and regulatory solutions have been implemented or are under consideration.[7] Overview The collapse of the U.S. housing bubble, which peaked in 2006, caused the values of securities tied to U.S. real estate pricing to plummet, damaging financial institutions globally.[8] Questions regarding bank solvency, declines in credit availability and damaged investor confidence had an impact on global stock markets, where securities suffered large losses during late 2008 and early 2009. Economies worldwide slowed during this period, as credit tightened and international trade declined.[9] Critics argued that credit rating agencies and investors failed to accurately price the risk involved with mortgage-related financial products, and that governments did not adjust their regulatory practices to address 21st-century financial markets.[10] Governments and central banks responded with unprecedented fiscal stimulus, monetary policy expansion and institutional bailouts. The hindu Business line Tuesday oct 21, 2008 India and the global financial crisis C. P. Chandrasekhar Jayati Ghosh While India is not likely to face a financial meltdown of the kind that was nearly experienced in the US, the global financial crisis will certainly have an impact. In this edition of Macroscan, C. P. Chandrasekhar and Jayati Ghosh consider the possible negative effects of the crisis on India and whether the Governments response so far has been appropriate. When the financial crisis erupted in a comprehensive manner on Wall Street, there was some premature triumphalism among Indian policymakers and media persons. It was argued that India would be relatively immune to this crisis, because of the strong fundamentals of the economy and the supposedly well-regulated banking system. This argument was emphasised by the Finance Minister and others even when other developing countries in Asia clearly experienced significant negative impact, through transmission of stock market turbulence and domestic credit stringency. These effects have been most marked among those developing countries where the foreign ownership of banks is already well advanced, and when US-style financial sectors with the merging of banking and investment functions have been created.

If India is not in the same position, it is not to the credit of our policymakers, who had in fact wanted to go along the same route. Indeed, for some time now there have been complaints that these necessary reforms which would modernise the financial sector have been held up because of opposition from the Left parties. But even though we are slightly better protected from financial meltdown, largely because of the still large role of the nationalised banks and other controls on domestic finance, there is certainly little room for complacency. The recent crash in the Sensex is not simply an indicator of the impact of international contagion. There have been warning signals and signs of fragility in Indian finance for some time now, and these are likely to be compounded by trends in the real economy. Economic downturn After a long spell of growth, the Indian economy is experiencing a downturn. Industrial growth is faltering, inflation remains at double-digit levels, the current account deficit is widening, foreign exchange reserves are depleting and the rupee is depreciating. The last two features can also be directly related to the current international crisis. The most immediate effect of that crisis on India has been an outflow of foreign institutional investment from the equity market. Foreign institutional investors, who need to retrench assets in order to cover losses in their home countries and are seeking havens of safety in an uncertain environment, have become major sellers in Indian markets. In 2007-08, net FII inflows into India amounted to $20.3 billion. As compared with this, they pulled out $11.1 billion during the first nine-and-a-half months of calendar year 2008, of which $8.3 billion occurred over the first six-and-a-half months of financial year 2008-09 (April 1 to October 16). This has had two effects: in the stock market and in the currency market.

Given the importance of FII investment in driving Indian stock markets and the fact that cumulative investments by FIIs stood at $66.5 billion at the beginning of this calendar year, the pullout triggered a collapse in stock prices. As a result, the Sensex fell from its

closing peak of 20,873 on January 8, 2008, to less than 10,000 by October 17, 2008 (Chart 1). Falling rupee

In addition, this withdrawal by the FIIs led to a sharp depreciation of the rupee. Between January 1 and October 16, 2008, the RBI reference rate for the rupee fell by nearly 25 per cent, even relative to a weak currency like the dollar, from Rs 39.20 to the dollar to Rs 48.86 (Chart 2). This was despite the sale of dollars by the RBI, which was reflected in a decline of $25.8 billion in its foreign currency assets between the end of March 2008 and October 3, 2008. It could be argued that the $275 billion the RBI still has in its kitty is adequate to stall and reverse any further depreciation if needed. But given the sudden exit by the FIIs, the RBI is clearly not keen to deplete its reserves too fast and risk a foreign exchange crisis. The result has been the observed sharp depreciation of the rupee. While this depreciation may be good for Indias exports that are adversely affected by the slowdown in global markets, it is not so good for those who have accumulated foreign exchange payment commitments. Nor does it assist the Governments effort to rein in inflation. A second route through which the global financial crisis could affect India is through the exposure of Indian banks or banks operating in India to the impaired assets resulting from the sub-prime crisis. Unfortunately, there are no clear estimates of the extent of that exposure, giving room for rumour in determining market trends. Thus, ICICI Bank was the victim of a run for a short period because of rumours that sub-prime exposure had badly damaged its balance sheet, although these rumours have been strongly denied by the bank. Exposure of banks So far the RBI has claimed that the exposure of Indian banks to assets impaired by the financial crisis is small. According to reports, the RBI had estimated that as a result of exposure to collateralised debt obligations and credit default swaps, the combined markto-market losses of Indian banks at the end of July was around $450 million. Given the aggressive strategies adopted by the private sector banks, the MTM losses incurred by public sector banks were estimated at $90 million, while that for private banks was around $360 million. As yet these losses are on paper, but the RBI believes

that even if they are to be provided for, these banks are well capitalised and can easily take the hit. Such assurances have neither reduced fears of those exposed to these banks or to investors holding shares in these banks. These fears are compounded by those of the minority in metropolitan areas dealing with foreign banks that have expanded their presence in India, whose global exposure to toxic assets must be substantial. What is disconcerting is the limited information available on the risks to which depositors and investors are subject. Only time will tell how significant this factor will be in making India vulnerable to the global crisis. A third indirect fallout of the global crisis and its ripples in India is in the form of the losses sustained by non-bank financial institutions (especially mutual funds) and corporates, as a result of their exposure to domestic stock and currency markets. Such losses are expected to be large, as signalled by the decision of the RBI to allow banks to provide loans to mutual funds against certificates of deposit (CDs) or buyback their own CDs before maturity. These losses are bound to render some institutions fragile, with implications that would become clear only in the coming months. Credit cutback

A fourth effect is that, in this uncertain environment, banks and financial institutions concerned about their balance sheets, have been cutting back on credit, especially the huge volume of housing, automobile and retail credit provided to individuals. According to RBI figures, the rate of growth of auto loans fell from close to 30 per cent over the year ending June 30, 2008, to as low as 1.2 per cent. Loans to finance consumer durables purchases fell from around Rs 6,000 crore in the year to June 2007, to a little over Rs 4,000 crore up to June this year. Direct housing loans, which had increased by 25 per cent during 2006-07, decelerated to 11 per cent growth in 2007-08 and 12 per cent over the year ending June 2008. It is only in an area like credit-card receivables, where banks are unable to control the growth of credit, that expansion was, at 43 per cent, quite high over the year ending June 2008, even though it was lower than the 50 per cent recorded over the previous year. It is known that credit-financed housing investment and credit-financed consumption have been important drivers of growth in recent years, and underpin the 9 per cent growth trajectory India has been experiencing.

The reticence of lenders to increase their exposure in markets to which they are already overexposed and the fears of increasing payment commitments in an uncertain economic environment on the part of potential borrowers are bound to curtail debt-financed consumption and investment. This could slow growth significantly. Finally, the recession generated by the financial crisis in the advanced economies as a group and the US in particular, will adversely affect Indias exports, especially its exports of software and IT-enabled services, more than 60 per cent of which are directed to the US. International banks and financial institutions in the US and EU are important sources of demand for such services, and the difficulties they face will result in some curtailment of their demand. Further, the nationalisation of many of these banks is likely to increase the pressure to reduce outsourcing in order to keep jobs in the developed countries. And the slowing of growth outside of the financial sector too will have implications for both merchandise and services exports. The net result would be a smaller export stimulus and a widening trade deficit. Domestic policy While these trends are still in process, their effects are already being felt. They are not the only causes for the downturn the economy is experiencing, but they are important contributory factors. Yet, this does not justify the argument that Indias difficulties are all imported. They are induced by domestic policy as well. The extent of imported difficulties would have been far less if the Government had not increased the vulnerability of the country to external shocks by drastically opening up the real and financial sectors. It is disconcerting, therefore, that when faced with this crisis the Government is not rethinking its own liberalisation strategy, despite the backlash against neo-liberalism worldwide. By deciding to relax conditions that apply to FII investments in the vain hope of attracting them back and by focusing on pumping liquidity into the system rather than using public expenditure and investment to stall a recession, it is indicating that it hopes that more of what created the problem would help solve it. This is just to postpone decisions that may prove critical till it is too late. Positive Impact of Global Financial Crisis on Indian Economy

ABSTRACT Behind every dark cloud there is a silver lining. As Newton's third law says "Every action has equal and opposite reaction" which was proved long ago. When the world is suffering of financial crunch cant we expect any positive impact of this financial crisis on our economy? Being a rational creature it is the human tendency to find out a positive way out in order to get prove its efficiency in negative scenario. In this paper I have focused on the positive impacts of Financial Crisis on Indian Economy as well as a better future for tomorrow. INTRODUCTION

The turmoil in the international financial markets of advanced economies, which started around mid-2007, has exacerbated substantially since August 2008. The financial market crisis has led to the collapse of major financial institutions like Lehman Brothers, Merill Lynch etc. and is now beginning to impact the real economy in the advanced economies. As this crisis is unfolding, credit markets appear to be drying up in the developed world. India, like most other emerging market economies, has so far, not been seriously affected by the recent financial turmoil in developed economies. But nothing lasts for long. Everyday we can't expect our economy to be in boom. The economy moves in various phases i.e. from expansion to peak and then peak to recession and along the way of recovery and once again to peak. This is because of human emotions i.e greed during expansion as the cause and sufferance during recession as the result. The term financial crisis is applied broadly to a variety of situations in which some financial institutions suddenly lose a large part of their value. Other situations that are often called financial crises include stock market crashes and the bursting of other financial bubbles, currency crises and sovereign defaults. The current financial crisis is the worst of its kind since the great depression of 1930s. It becomes prominently visible in September 2008 with the failure of several large US based financial firms. The global financial meltdown has spelt disaster for the world economy in general and for the US and the European economies in particular. But the interesting fact is that when the world's developed economies are suffering, the developing countries like India and China is still spending money in many projects. THE INDIAN APPROACH IN CURRENT SCENARIO Cautioning against the use of word "recession" for Indian economy, Finance Minister P Chidambaram says India's growth would moderate in this difficult year, but would still be second-fastest in the world at the rate of 7-8 per cent. According to him a recession is defined as two successive quarters of contraction of GDP. He wishes to emphasize that India is nowhere near a recession. We may expect a moderation in growth rate in the current year to a level between 7 and 8 per cent. India would still be the second-fastest growing large economy in the world Chidambaram says. Giving a positive projection on the country's economic scenario, P.M Manmohan Singh said India could regain its annual growth rate of 8% to 9% as the world's economy could recover partially the present crisis by September this year. According to the Planning Commission Deputy Chairman, Montek Singh Ahluwalia, "The global financial turmoil will not have any significant impact on the country's financial system as India is not exposed to the new and innovative financial instruments that triggered the meltdown. We have not been as exposed to these new and innovative instruments, which have been the source of financial distress internationally. So the direct impact on the Indian financial system is not going to be significant at all." There will be indirect effect as regards to India, the country is fortunate to have large foreign exchange reserves and hence it would be able to tide over any short-term disruption in capital inflows. The strengths of the Indian economy are substantial and capital inflows would eventually resume the normal course.

POSITIVE IMPACTS OF GLOBAL FINANCIAL CRISIS ON INDIAN ECONOMY o Emergence of a new economy This is the time of global financial crisis when world's biggest economies like US and Europe are struggling to overcome this situation and India was able to invest money for launching of chandrayaan-1.This is the time when world's most powerful economies are suffering more than Indian economy. This crisis has affected developed country economies more than developing country's economy. In USA huge giants of banking and finance sector like Lehman Brothers, Merill Lynch, Washington Mutual Operations etc. could not survive in this crisis and have lost their existence. In comparison to such horrible conditions India is in a better place. It is an appreciating fact that we have a number of companies still reporting successes at this time. Some of the businesses have diversified into a number of areas and others have exposure to export markets. o Expose of weaknesses in the economy The major role of financial crisis is that it exposes the political, structural and financial weaknesses of an economy. It explores efficiency in the financial market, transparency and accountability of new or reformed organizations, opportunity for creating new jobs and technologies, sufficient fund for investment in R&D innovation and education. During the financial crisis period, the extent of sufferance of an economy shows its weaknesses. When rest of the world gets disturbed and capital flows and liquidity shrinks, there is bound to be spillovers not just on India but all over the world. Regulators are trying to assess the situation and taking steps to insulate their economies from the shock. The fine fact that we have not been affected shows the merit of proceeding slowly. We have been reforming very slowly and steady pace of reforms has some advantage and we should continue with that pace. Our country pursued economic reforms in a calibrated manner and escaped the fallout of global financial crisis. So the expose of weaknesses will definitely help India's fast growing economy in the long run. o Cost stabilization in real estate market. Both the builders' association Confederation of Real Estate Developers Association of India (CREDAI) and National Real Estate Development Council (NREDC) have appealed the members to slash prices of their properties. Builders feel that slashing down prices will encourage buyers and restore confidence. This enables middle-class families to think of having their own homes which had become a distant dream because of unrealistic rise in real estate properties. By developing middle-class families it is for sure that Indian economy will be affected positively in long run. o Rationalization of Salary Structure in IT Industry

This financial crisis has a positive impact on the IT industry. This sector has seen an unmatched rise in salaries and increments. But with this financial crisis this unusual hike came under control as no economy can afford 25% to 30% salary hike per industry per annum. So now IT industry slowdown will ensure better quality of work and also prevent attrition. Today the IT professional have to think twice before changing their jobs. Along with it funds spent on recruitment, training and development and retention of man power will come down considerably. Earlier the scene was totally different. Because of such high growth rate of salary structure, IT professionals were changing jobs frequently which impacts adversely the job culture of the industry particularly. It also affected the overall productivity of the industry. But now the scene is reverse in nature. As a result of this financial crisis professionals not only think twice before changing the job but also ready to work more with the same salary with the objective to keep his job secure. This would definitely help in the improvement of this sector as well as the productivity of the IT industry. o Performance Appraisal is gaining ground Earlier as there were many job opportunities available for the people; the role of performance appraisal was less. Every year, thousands of businesses were losing millions in revenue due to inefficient employees. Now as this financial crisis arises everyone is trying to save his job. Because of the changed job environment, emerged from the global financial crisis use of Performance Appraisal is gaining its ground day by day. As a result, everyone is ready to give his 100% to his job. Fear of losing the job improves the performance of the employees as a whole. o Cost Cutting- the only solution Cost cutting seems to be the only solution to this financial crisis. Starting from Govt. sectors to big private corporate sectors, cost cutting has spread its branches everywhere. Earlier when big multinationals were spending recklessly for promoting their business where staff luxury was of major portion, today they are taking a second thought before spending a single penny. o Best place for outsourcing "It is time to open up banking and insurance sectors for further foreign direct investments as multinational insurers and bankers are willing to invest more in India. There is a talk that FDI limit in insurance might be hiked to49%. And this time is the best time to do it", Prabhu Guptara, Executive Director, Think-Tank of United Bank of Switzerland (UBS). According to Obama Govt. US's priority would be given to curb costs, which would include cutting wage expenditure and there by outsource work to countries like India. In view of high credibility, Indian banks should also expand retail and other businesses abroad. There is also a need for more innovative products and global competitiveness.

India continues to be the best place or top destination for outsourcing. The factors which are responsible for it are firstly when it comes to salary costs India is extremely competitive, secondly Indian outsourcing firms have now matured into true global companies that can offer best services at competitive prices. India is coming under the list of top outsourcing destinations with China, Brazil, Mexico, Malaysia and Chile. Another advantage of India is that India is having one of the largest producers of English-speaking graduates including management and engineering graduates. Such a huge number of graduates will definitely result in offering higher value-added services to the customers which is very weak in china as the number of youth is less there. Today having the maximum no of youth our country is ready to adapt to this situation. Conclusion While it is uncertain how long-lasting and deep the recession will be, it can be said that demand, and subsequently growth, will return. It is therefore very important that, when this happens, policymakers have a recovery plan in place. This plan should act to foster growth in the short-term and lay the foundations for economic stability in the long-term. The growth of the public sector and the narrow reliance on financial services for growth needs to change, with manufacturers and exporters having particular attention paid to them. After considering so many positive points we can assure that we are quite in a safer place in comparison to many developed countries economy. To conclude lets hope for a stronger India by rectifying all its economic weaknesses after this deep global financial crisis. REFERENCES o Ghosal S.N. (2009) "Global Financial Crisis- Cause and Impact" Icfai Reader.Mar2009 o International Monetary Fund (2008) "Global Financial Stability Report", October 2008. o Larry Elliott, "Credit crisis- how it all began" The Guardian, (Aug.5, 2008). Reserve Bank of India (2008), Annual Policy Statement for the year 2008-2009 April. o Singh Dhananjay (2009) "Global Financial Crisis Positive for India", Icfai Reader, Jan2009. o Vardhani D and Sridevi J (2009) " Downturns and Impact of Global Meltdown" Icfai Reader .Mar2009 o Venugopal V. (2004) "India and Global Economy" The Asian Economic Review, vol.46, No.3 December 2004 o World Bank (2008) "Global Development Finance2008", June.