Download Economic Volatility and Risk Management

Economic Volatility
and Risk
Management
With reference to Indian and
Global economy ….
What is Economic Volatility???
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A situation in which the economy of a
country experiences a sudden downturn by
a financial crisis. Features arefalling GDP, (actual or projected)
a drying up of liquidity
rising/falling prices due to inflation/deflation.
An economic crisis can take the form of a
recession or a depression.
What is Risk Management???
Simply risk management is a two-step
process –
 Determining what the risk is all about
including responsible factors of risk???
 And then handle those risks in the best
way suited according to the situation ...
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Out look of Presentation…
What is the present economic situation of
India???
 How we reached to this Situation???
(Domestic and Global Factors)
 Probable Solutions….or Risk
Management…
 Whats Your Contribution??
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Present Situation of India
It is only the report of RBI a day before
(31st July 2012) declared that present
Inflationary situation of India can not be
accepted …It simply means we are in the
clinch of MAHANGAI…or Inflation…
 There are two types of inflation Cost push and demand pull inflation
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Symptoms of catching the diseases
called economic crisis
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Indian economy is facing the downward trends–
following are the indicators of the sameIncreasing inflation
Decrease the Foreign currency reserves
Increase the fiscal deficit
Increasing the negative balance of payment (
which means in creasing import and decreasing
export)
Symptoms contd…
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Decreasing the value of Indian currency
and increasing the dollar..
What are the consequences of all
these ???
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Down grading the projected GDP from 9% to
6.5%..
Decrease in industrial production and export,,
Downgrading the rank of India by international
agency like MOODY (from BBB+ to BBB-)
Downgrading the credit rating of Indian banks
and overall outlook of India (by fitch)
Lack of liquidity in market
Causes of the said crisisCauses can be divided into two category1.
Internal 2. External
Internal causes includesPolicy Paralysis
Huge government subsidies,
Frequent rate hikes by RBI due to inflation,
Lack of investment in core sectors internally,
Corruption at every strata of administration
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External Causes
Increasing Imports (Petroleum and oil )
 Decreasing the value of Rupee to $
 Present EUROZONE crisis
 Withdrawal by FIIs
 US crisis in the year 2007-08
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Probable Solution…
The last stage of Risk Management isReaching to the point of curing the disease
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Austerity? (STRICT STEPS) for the
following seems to be good for the above
crisis-
Probable solution contd…
Cutting Subsidy…. in Diesel, Oil , LPG
 Reducing the Government Expenditure
 Taking proper steps by bank before
lending (Reducing NPA)
 Implementation of such policies which
welcomes the Foreign investments
 Improving the health of Infrastructure
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Probable Solution contd…
Opening of FDI for certain new areas
 Fast implementation of decision for FDI
(multi brand retail, aviation etc )
 Disinvestment policies to be renewd for
achieving the target
 SME sector export is the one key to open
the locked /blocked situation
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Monetary Measures-RBI has taken number of measures to
control the price declining or rupee…
 Raised the investment limit for foreign
institutional buyers in government debt by
$5 billion to $20 billion. However, the
additional limit can be invested only in
bonds of three years and above
 Allowed foreign borrowing to NBFCs
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Monetary steps contd…
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It also allowed sovereign wealth funds, multi-lateral
agencies, foreign central banks and insurance, pension
and endowment funds to buy federal bonds.
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The Reserve Bank of India reduced the lock-in period of
investment to three years from five for foreign investment
in government bonds for up to $10 billion, including the
additional $5 billion.
Steps by Government
FRBM (fiscal discipline by imposing
minimum and maximum limit)
 Introduction of GAAR
 Bringing GST
 White paper on black money
 Encouraging the corporate sector for
infrastructure investment.
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Positive impact of this situation
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Every coin has two faces– henceforth present
situation has a good news for
- IT and outsourcing companies-Contribution of
IT sector for exporting their services is better
and cost effective…increasing $ has helped this
sector to flourish BUT EUROZONE might be the
hurdle for this sector in coming future…
Export sectors will be benefitted by increasing
dollar subject to EURO crisis solved soon
What you can do???
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SLIDE IS LEFT BLANK FOR YOUR KIND
SUGGETIONS PLEASE…..
My Belief on the issue - One failure
leads to another so does success...
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Thinking globally, acting locally India would
once again emerge out of this crisis and will
take the leadership worldwide. Optimism and
innovativeness, running high among all
Indians, are the fuels to burnt every crisis
and make a beautiful future ahead….
(THANKU SO MUCH)…
Prepared by (Chetna Soni) AEO
Disclaimer Clause: Views expressed in this presentation views of the author do not
necessary reflect those of the Institute.