The document discusses the global financial crisis, its impact on India, and lessons learned. It outlines how India was less affected than the US/Europe due to differences in its financial system and policy approach. The RBI implemented measures to ensure liquidity and credit flow. Key lessons include avoiding volatile monetary policy and managing capital flows. Medium-term challenges include reducing fiscal and current account deficits and adapting monetary policy to India's growing, open economy.

1. Financial Crisis And India

5. Global Financial Crisis (2) Current Account Balance (per cent to GDP) Country 1990-94 1995-99 2000-04 2005 2006 2007 2008 China 1.4 1.9 2.4 7.2 9.5 11.0 10.0 India -1.3 -1.3 0.5 -1.3 -1.1 -1.0 -2.8 Russia 0.9 3.5 11.2 11.0 9.5 5.9 6.1 Saudi Arabia -11.7 -2.4 10.6 28.7 27.9 25.1 28.9 United Arab Emirates 8.3 4.6 9.9 18.0 22.6 16.1 15.8 United States -1.0 -2.1 -4.5 -5.9 -6.0 -5.3 -4.7 Memo: Euro area n.a. 0.9 0.4 0.4 0.3 0.2 -0.7 Middle East -5.1 1.0 8.4 19.7 21.0 18.2 18.8 Source: World Economic Outlook Database, April 2009, International Monetary Fund. Note: (-) indicates deficit.

10. Global Financial Crisis (7) Worsening Global Economic Outlook Growth Forecast of IMF (per cent) Region April 2008 July 2008 October 2008 April 2009 2008 2009 2008 2009 2008 2009 2008 2009 Advanced countries 1.3 1.3 1.7 1.4 1.5 0.5 0.9 (-)3.8 EMEs 6.7 6.6 6.9 6.7 6.9 6.1 6.1 1.6 World 3.7 3.8 4.1 3.9 3.9 3.0 3.2 (-)1.3 Global Trade Volume (Goods and Services) World 3.7 3.8 4.1 3.9 3.9 3.0 3.3 -11.0

12. Impact on India (1) Trends in Capital Flows Component Period 2007-08 2008-09 Foreign Direct Investment to India April-February 27.6 31.7 FIIs (net) April-March 20.3 -15.0 External Commercial Borrowings (net) April- December 17.5 6.0 Short-term Trade Credits (net) April- December 10.7 0.5 Total capital flows (net) April- December 82.0 15.3 Memo : Current Account Balance April- December -15.5 -36.5 Valuation Gains (+)/Losses (-) on Foreign Exchange Reserves April- December 9.0 -33.4 Foreign Exchange Reserves (variation) April-December 76.1 -53.8 April-March 110.5 -57.7

13. Impact on India (2) Key Macro Indicators Indicator Period 2007-08 2008-09 Growth, per cent Real GDP Growth April-December 9.0 6.9 Industrial production April-February 8.8 2.8 Services April-December 10.5 9.7 Exports April-March 28.4 6.4 Imports April-March 40.2 17.9 GFD/GDP April-March 2.7 6.0 Stock Market (BSE Sensex) April-March 16,569 12,366 Rs.per US$ April-March 40.24 45.92

25. Measures since Mid-September, 2008 (5) Impact of Measures (2) Item March 2008 September 2008 October 2008 March 2009 Turnover (Rupees crore, average daily) 1 Call market 11,182 11,690 14,497 11,909 2 All money markets @ 63,395 42,891 40,906 81,821 Key Interest Rates (per cent) 3 Call market 7.37 10.52 9.90 4.17 4 All money markets @ 6.55 9.26 8.66 3.76 5 BSE Sensex 15946 13943 10550 8995 6 Rs. Per US $ 40.36 45.56 48.64 51.23 7 10-year G-sec yield 7.69 8.45 7.85 6.56 8 Certificate of Deposits 10.0 11.6 10.0 7.0 9 Commercial Paper 10.4 12.3 14.7 8.9 10 Deposit rate (1-3 yrs)# 8.25-9.25 8.75-10.25 8.75-10.25 8.00-9.25 11 BPLR# 12.25-13.50 13.75-14.75 13.75-14.75 11.50-14.00 @: Call money, CBLO and market repo; #: Data pertain to PSBs.

26. Measures since Mid-September, 2008 (6) Total Resource Flow from Banks and Non-banks Rupees crore Item 2007-08 2008-09 1 Non-food Bank credit 4,44,807 4,14,902 2 Non-banks 3,35,698 2,64,138 3 Total flow of resources (1+2) 7,80,505 6,79,040

27. Measures since Mid-September, 2008 (7) Inflation in India (per cent) Item March 2008 June 2008 September 2008 December 2008 March 2009 Wholesale price inflation All commodities 7.8 12.0 12.1 5.9 0.3 Of which: Primary articles 9.7 11.0 12.0 11.6 3.5 Fuel 6.8 16.3 16.5 -0.7 -6.1 Manufactured products 7.3 10.9 10.5 6.2 1.4 Consumer price inflation Agricultural labourers 7.9 8.8 11.0 11.4 10.8 (Feb) Rural labourers 7.6 8.7 11.0 11.4 10.8 (Feb) Urban non-manual employees 6.0 7.3 9.5 9.8 9.9 (Feb) Industrial workers 7.9 7.7 9.8 9.7 9.6 (Feb)