Economic Volatility and Risk Management

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Economic Volatility and Risk Management

• With reference to Indian and Global economy .

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What is Economic Volatility???

• A situation in which the economy of a country
  experiences a sudden downturn by a financial
  crisis. Features are-
• falling 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.

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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 MAHANGAIor
  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-

• Indian economy is facing the downward trends
  following are the indicators of the same-
• Increasing inflation
• Decrease the Foreign currency reserves
• Increase the fiscal deficit
• Increasing the negative balance of payment (
  which means in creasing import and decreasing
  export)

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Symptoms contd

• Decreasing the value of Indian currency and
  increasing the dollar..

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What are the consequences of all these ???

• 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

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Causes of the said crisis-

• Causes can be divided into two category-
• Internal 2. External
• Internal causes includes-
• - Policy 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 is-
• Reaching to the point of curing the disease
• Austerity? (STRICT STEPS) for the
• following seems to be good for the above
  crisis-

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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

• It also allowed sovereign wealth funds,
  multi-lateral agencies, foreign central banks and
  insurance, pension and endowment funds to buy
  federal bonds.
• 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.
  

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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

• 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 effectiveincreasing 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

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What you can do???

• SLIDE IS LEFT BLANK FOR YOUR KIND SUGGETIONS
  PLEASE..

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My Belief on the issue - One failure leads to
another so does success...

• 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.