Under Amity International Lecture Series, Dr. Shankar Acharya- Honorary Professor and Board Member of the Indian Council for Research on International Economic Relations (ICRIER and Former Chief Economic Adviser to the Government of India delivered a lecture on “Global Financial Crisis and Impact on India” at Amity University, Sector- 125, Noida.He started his lecture with a prediction that the worst economic global crisis since 1930 has hit the world and the end is not visible.Though this fiscal year India will manage 70% of the growth but next year it will feel the pain more. India has to tolerate a slower growth for 2 or more coming years
Elaborating the impact of recession on India, Dr. Acharya said that the recession has little direct effect on Indian Economy because of the conservative policies followed by Indian banks especially Central Banks and lesser inter- bank borrowings in India as compared to West. Outlining areas hit by recession, he said that exchange rates have come down by 20% and Indian exports have plummeted from October, 2008 onwards showing a negative growth of 10- 15%. Cyclic downturn in industries has intensified and investment plans have stalled. Money is flowing out of India and domestic liquidity has squeezed.
Doling out measures to be adopted by India to minimize the impact of recession, Dr. Acharya said that India should continue careful management of domestic liquidity and exchange rates. It should guard against excess liquidity expansion and excess fiscal deficits. Rather than indulging in futile attempts to bail out everybody India should focus systematically on important entities, which can cause ripple effect on the large chunks of the society. It should revive investment mood through economic reforms
Talking about what needs to be done at Global front to fight recession, the erudite speaker said that coordinated fiscal stimulus by major economies like US, China, Japan, rapid capitalization of weak financial institutions, better International surveillance of financial market, no rise in protectionist measures related to goods and services, improved and better coordinated regulations and supervision of financial institutions and increased resources for IMF and World Bank can, to some extent, can lessen the affect of recession in hard hit countries.
Outlining the causes of US recession, Dr. Acharya in his concise and enlightening lecture said that over the last few years, especially between 2001-07, lot of liquidity and capital flowed into US from powerful countries like China, Japan and oil producing countries of Middle East. Chinese goods exploded into US markets. Over 800 billion dollars flowed into US every year till 2007. Despite the great liquidity, price of goods or services did not rise or rise very marginally. Everyone went on a borrowing speed and everyone made money.There was a prolonged Housing Boom in US from 1991- 2006 Comparing Gross US Debt (as % of GDP) in 1982 with that in 2007, Dr. Acharya said that Household Debts rose sharply from 45% in 1982 to 100% in 2007, whereas Financial Sector Debts rose acutely from 20% in 1982 to 115% in 2007.The society was heading towards major debts specially households and financial sectors. House loans were lent without much discretion on the part of lending authorities and banks, lending standards went down resulting in sub- prime mortgages (home loan defaults).By 2007 over a trillion dollars were lent by US Banks.
“Weak regulations of financial derivates, SIV’s (Structured Investment Vehicles) Complex Structured Products all fueled excess leverage and excess risks, which spread across entire financial sector ”, citied Dr. Acharya. In 2007, Lehman Brothers’ Capital to Assets Ratio was 30:1 as compared to the ideal ratio of 1:30. Profits of the Financial Sector rose from 10% to 40%.
Sharing World Economic Outlook Projection of IMF (November 2008) , Dr. Acharya predicted that GDP of US will witness a sharp negative decline from 1.4% in 2008 to -0.7% in 2009. The GDP of India will also decline to 6.3% in 2009 but will surely not witness a negative decline.
Dr. Ashok K Chauhan- Founder President, Amity Universe applauded Dr. Shankar Acharya for his prolific talk, which was comprehensible even to a lay man, having no or less knowledge of economics. Dr. Chauhan announced that Amity University will soon start courses in areas like “Financial Supervision” wherein students will do a thorough analysis of unprecedented economic meltdown and help the economy to tide over the crisis of recession.
Also present during the lecture were Mr. Atul Chauhan- Chancellor, Amity University, Uttar Pradesh, Mr. Aseem Chauhan- Chancellor, Amity University, Rajasthan, Maj. Gen. K. Jai Singh- Vice Chancellor, Amity University and several other senior Directors and faculty members of Amity University.
About Dr. Shankar Acharya
Dr. Shankar Acharya is one of India’s leading policy economists. He has authored several books and numerous scholarly articles in academic journals. His two most recent books are “Macroeconomic Policy and Growth in India” and “Can India Grow without Bharat ?”. He also serves on the governing boards of other national research organizations and various advisory bodies of Government like the Reserve Bank .He is non-executive Chairman of Kotak Mahindra Bank