FOREWORD

1.

THE THEME OF THE REPORT

2.

GENESIS AND THE NATURE OF THE CRISIS  

Causes of the Crisis  

Financial Crises in a Historical Perspective  

How the Recent Crisis Differs from Earlier Crises

Concluding Observations

3.

MANIFESTATION OF THE CRISIS  

Impact on Financial Markets  

Impact on Financial System

Impact on the External Sector  

Impact on Real Economy

Concluding Observations

4.

INTERNATIONAL RESPONSES TO THE CRISIS

Policy Responses During Financial Crises: Historical Perspective

Monetary Policy Responses

Fiscal Support to the Financial Sector  

Counter-Cyclical Fiscal Policy: Keynesian Measures

Fiscal and Monetary Policy Co-ordination

Response of Multilateral Institutions

Financial Sector Policies

Concluding Observations

5.

IMPACT AND POLICY RESPONSES IN INDIA: FINANCIAL SECTOR

Channels of Global Integration  

Impact of Global Crisis on Financial Markets

Banking Sector, Mutual Funds and Non-Banking Financial Companies  

Policy Responses  

Concluding Observations

6.

IMPACT AND POLICY RESPONSES IN INDIA: REAL SECTOR

Transmission of Global Shock to the Real Sector  

Impact on India Through Trade Channel

Impact on India Through Financial Channel

Impact on Saving, Investment and Growth

Concluding Observations

7.

LESSONS FROM THE CRISIS AND FUTURE CHALLENGES

Lessons for Central Banks

Lessons for Financial Regulation and Supervision  

International Policy Co-ordination  

Role of International Financial Institutions  

Global Imbalances and Macroeconomic Management  

Lessons for Fiscal Policy  

Role of Credit Rating Agencies  

Balancing the Size of Financial and Real Sectors

Lessons for Emerging Market Economies Including India

Major Challenges for Policymakers

Concluding Observations

SELECT REFERENCES  

LIST OF BOX ITEMS

Box No.

Title

II.1

Originate-to-Distribute Model  

II.2

Credit Rating Agencies (CRAs): Boon or Bane?

II.3

The Concept of Shadow Banking

II.4

The Great Depression

II.5

East Asian Crisis  

II.6

The Great Depression and India  

II.7

Genesis of Crisis in Greece  

III.1

Impact of Declining Asset Prices on Household Wealth

III.2

Why Asian Exports Were Worst Affected

III.3

Impact on Aggregate Demand  

III.4

Transmission Channels of Financial Crisis: Financial and Real Linkages

III.5

Impact of the Global Crisis on Asia  

III.6

Labour Productivity Analysis during Boom and Bust Period  

IV.1

Lender of Last Resort  

IV.2

Policy Response during the Great Depression and the Recent Crisis

IV.3

Quantitative Easing and Central Bank Balance Sheets

IV.4

Measures Relating to Deposit Guarantee  

IV.5

Discretionary Fiscal Policy as Counter-Cyclical Measures  

IV.6

Relevance of Fiscal Policy in the Current Downturn

IV.7

Some Requirements for Fiscal Policy Effectiveness

IV.8

Determinates of Fiscal Multiplier  

IV.9

G-20 Working Group 3: Reform of the IMF  

IV.10

G-30 Report on Financial Reform: A Framework for Financial Stability  

IV.11

Report of G-20 Working Group 1 on Enhancing Sound Regulation and Strengthening Transparency: Major Recommendations  

IV.12

Turner Review: Major Recommendations  

IV.13

Recommendations of the High-Level Group on Financial Supervision in the European Union

IV.14

Report of the Commission of Experts of the President of the United Nations General Assembly on Reforms of the International Monetary and Financial System (Chairman: Joseph E. Stiglitz)

IV.15

G-20 Working Group 2: Reinforcing International Cooperation and Promoting Integrity in Financial Markets .

IV.16

US Administration’s Financial Sector Plan  

IV.17

Enhancements to the Basel II Framework

IV.18

FASB and IASB Approaches

IV.19

Expanding the Scope of Financial Regulation

V.1

Financial Openness and Economic Growth

V.2

Policy Measures to Augment Forex Liquidity  

V.3

Major Global Events and Response of Indian Stock Markets  

V.4

Regulatory Measures

V.5

Balance Sheet Effect of Monetary Policy

V.6

Policy Measures to Address Financial Stress Faced by NBFCs

V.7

Fiscal Policy Responses against the Backdrop of the Global Financial Crisis  

V.8

Monetary Policy Response..

VI.1

Loss of Potential Growth in India vis-à-vis Emerging Market Economies (EMEs)

VI.2

Exports and Domestic Growth Relationship: The Growth Accounting Approach

VI.3

The Gravity Model of Foreign Trade

VI.4

India’s Exports of Engineering Goods

VI.5

Affect of Commodity Prices on Asset Prices, Investment, Trade and Economic Activity

VI.6

Global Crisis and Impact on Software Exports

VI.7

Foreign Savings and Investment in India  

VI.8

Global Crisis and Performance of Corporates in India

Chart No.

Title

II.1

Global Imbalances: 1990-2009

II.2

US Real Interest Rate and Effective Fed Funds Rate

II.3

Structured Finance Products: Matryoshka ‘Russian Doll’ Structure

II.4

Capital Flows to Developing Countries during Crisis Episodes  (as % to GDP)

II.5

Trends in EME Trade Volume during Crisis Episodes (percentage change)

II.6

US GDP Growth since 1930s (annual percentage change)

III.1

Funding Liquidity and Inter-bank Spreads

III.2

Impact on the Credit Market

III.3

Movements in Equity Markets

III.4

Impact on Corporate Bond Market

III.5

Volatility in Government Bond Yields

III.6

Movement in Exchange Rates

III.7

Movement in Commodity Prices

III.8

Movement in House Prices

III.9

Realised and Expected Write downs of Loss Provision for Banks

III.10

Bank Failures in the United States

III.11

Insurance Sector Credit Default Swap Spread

III.12

International Trade – Trends and Significance

III.13

Monthly Trade Performances

III.14

Region-wise Trade Performance

III.15

Remittances Outflows

III.16

Net Capital Flows to Emerging and Developing Countries

III.17

Impact of Crisis on Economic Growth

III.18

Synchronised Fall in GDP Growth

III.19

Consumer Price Inflation – Select Countries

III.20

Real GDP in the Euro Area

III.21

Growth of Industrial Production (SA)

IV.1

Monetary Policy Rates: Deviation from the Taylor Rule

IV.2

Policy Rates Cuts in EMEs during Sept. 2008 to June 2009

IV.3

Size of Fiscal Packages (revenue and spending measures) in OECD Countries during 2008-10 (as % of 2008 GDP)

IV.4

Discretionary Fiscal Stimulus and Automatic Stabilisers in OECD Countries

IV.5

Discretionary Fiscal Stimulus and Output Gap in G-20 Countries  

IV.6

Discretionary Fiscal Stimulus and Initial Debt Position in G-20 Countries

V.1

Key Transmission Channels of Global Shocks on the Domestic Economy

V.2

External Openness of Indian Economy  

V.3

Cyclical synchronisation of GDP with Exports, Bank Credit and  Capital Flows (Correlation coefficient)

V.4

Trends in Exchange Rates (USD-INR)

V.5

Volatility and Rate in India’s Forex Market

V.6

Movement in Indian Rupee

V.7

Forex Swap Facility and USD-INR Volatility

V.8

Liquidity Adjustment Facility and Call rate

V.9

Call Rate Volatility  

V.10

Liquidity Position and Money Market Rate

V.11

CP and CD Issuances

V.12

Money Market Spreads

V.13

Developments in Government Securities Market  

V.14

Movements in Benchmark Yieds (1y, 5y and 10y) during 2007-09  

V.15

Volatility in Stock Markets

V.16

Growth Trend in Sectoral Bank Credit  

V.17

Trends in Credit Growth and Economic Activity  

V.18

Interest Rates Movements  

V.19

BSE Sensex and Net Investments by Mutual Funds

V.20

Financial Stress Indicators

V.21

Relative Contribution of Government Consumption to GDP Growth

VI.1

Trends in GDP Growth

VI.2

India’s Business Cycle Synchronisation (2005Q1-2009Q2)

VI.3

Synchronisation of the Industrial Sector

VI.4

Exports and External Demand  

VI.5

Imports and Industrial Activity  

VI.6

India’s Imports of Commodities and Global Prices

VI.7

Global Commodity Price Cycles

VI.8

Oil and Food Prices

VI.9

Trade-Related Services

VI.10

Remittances: Trends and Relationship with International Oil Prices

VI.11

Capital Flows and Domestic Capital Formation  

VI.12

ECB Disbursements and Capital Goods Imports  

VI.13

Indicators of Finance Channel  

VI.14

Trends in Quarterly Growth in Demand-Side Components  

VI.15

Trends in Cyclical IIP, Exports and FDI  

VI.16

Relative Contribution of Services

Table No.

Title

2.1

Macro Parameters of the United States

2.2

Current Account Balance

2.3

Current Account Balance (per cent to GDP)

2.4

Savings and Investment  

2.5

Exports of Goods and Services  

2.6

Mortgage Originations  

2.7

Global Issuance of Credit Debt Obligations (CDOs)

2.8

U.S. Sub-prime Exposures and Losses

2.9

Incidence of Financial Crisis

2.10

Frequency of Financial Crisis :1973-2007

2.11

Major Financial Crises: 1873-2007

2.12

Global Crises Originating in the USA  

2.13

Duration and Depth of Financial Crises

2.14

Previous Episodes of Global Imbalances

2.15

Systemic Crises: Broad Indicators

2.16

Cross-Country Crises: Initial Conditions

2.17

United States: Great Depression vs. Recent Crisis

3.1

Movement in Interbank Spreads

3.2

Growth of Private Domestic Credit in Select Asian Economies  

3.3

Credit Market Spreads

3.4

Emerging Market Equity Issuance

3.5

Stock Market Changes - Select Countries

3.6

Performance of Emerging Equity Prices

3.7

Cross-Country Stock Market Capitalisation

3.8

Emerging Market Bond Issuance-Select Countries

3.9

Emerging Market Bond Spreads – Select Countries

3.10

Sovereign External Borrowings in Emerging Europe

3.11

Exchange Rates : Appreciation (+)/Depreciation (-) of Currencies against the US dollar

3.12

Movement of Real Effective Exchange Rates of Select Emerging Countries  

3.13

Movement in Global Commodity Prices

3.14

Profitability of Major Banks as a Percentage of Total Average Assets

3.15

Banking Indicators – Select Countries

3.16

Select Asian Banks with Exposure to Lehman Brothers

3.17

Bank Ratios

3.18

Banking Indicators – Select Countries

3.19

Emerging Market Hedge Funds  

3.20

Trade Openness – Select Countries

3.21

Developments in World Trade Volumes  

3.22

Trade Performance of Select Asian Countries

3.23

World Exports of Merchandise and Commercial Services

3.24

Remittance Flows to Developing Countries, 2002-09

3.25

Major Remittance-receiving Developing and Transition Economies in 2009  

3.26

Cross-country Movement of Trade Balance and Current Account Balance

3.27

Capital Flows in EMEs: Various Episodes Compared

3.28

Net Capital Inflows to EMEs by Region

3.29

Net External Capital Flows to Developing Countries

3.30

Outflows from Major Advanced Economies

3.31

Cross-country Movement of FDI Flows  

3.32

Cross-country Movement of Portfolio Flows

3.33

Cross-country Comparison of Short-term Trade Credit

3.34

International Short-term Liabilities up to One Year Remaining Maturity

3.35

International Reserve Movement

3.36

Growth in Real GDP  

3.37

Quarterly GDP Growth

3.38

Comparison of GDP Growth Estimates for 2009

3.39

Gross Saving and Investment  

3.40

Trends in Consumer Price Inflation  

3.41

Composition of Real Domestic Demand (seasonally adjusted)

3.42

Residential Property Prices in the Euro Area  

3.43

Government Fiscal Balance  

3.44

Real GDP Growth, Investment and Exports – Select Asian Economies

3.45

Unemployment Rates  

4.1

Typology of Conventional and Unconventional Measures of  Central Banks

4.2

Policy Rate Cuts in Advanced Countries

4.3

Select Recent Central Bank Measures  

4.4

Major Crisis Interventions Introduced by Central Banks  

4.5

Select Unconventional Measures by EME Central Banks  

4.6

Measures Implemented in Select EMEs (September 2008-May 2009).

4.7

Effectiveness of Crisis Interventions  

4.8

3-Month LIBOR-Overnight Index Swap Spread: Declines from Peak

4.9

Support to Financial Sector as on June 2009 (as % of 2008 GDP)  

4.10

Fiscal Costs of Selected Crises in the Past (as per cent of GDP)  

4.11

Financial Sector Support Utilised Relative to Announcement (as % of 2008 GDP)

4.12

Size of Discretionary Measures in G-20 Countries, 2008-10

4.13

Composition of Fiscal Packages in OECD Countries during 2008-10 (as % of GDP)

4.14

G-20 Stimulus Measures, 2008-10

4.15

Multipliers in OECD Countries  

4.16

G-20 Countries- Impact of Fiscal Expansion on Growth  

4.17

Debt Dynamics and Debt Stabilising Primary Balances

5.1

Openness Indicators of Indian Economy

5.2

Transactions in Foreign Exchange Rate Market.

5.3

Movement of Indian Rupee

5.4

Activity in Money Market Segments

5.5

Transactions in Government Securities Market

5.6

New Capital Issues by Non-Government Public Ltd. Companies  

5.7

Market Capitalisation of Stock Exchanges: Region-wise

5.8

Market Capitalisation of Stock Markets in Emerging Market Economies

5.9

Cyclical Synchronisation of Indian Stock Market with Select Countries

5.10

Integration of India’s Stock Market with Regional and Global  Markets Long-run Co-integrating Relation (April 1993 to July 2009, weekly stock prices in US dollars)

5.11

Trends in BSE and Nifty Indexes

5.12

Stock Market Indicators

5.13

FII Flows and India’s Stock Market: Causal Relationship

5.14

Real Stock Return and Industrial Production Growth Pair-wise Granger Causality Tests  

5.15

Bank Size and Average Operating Performance

5.16

Growth of Balance Sheet of Scheduled Commercial Banks- Bank Group-wise

5.17

Credit Growth and Financial Performance: 2008-09

5.18

Growth in Sectoral Bank Credit  

5.19

Resource Mobilisation by Mutual Funds

5.20

Sector-wise Net Resources Mobilised by Mutual Funds

5.21

Consolidated Balance Sheet of NBFCs-D

5.22

NPA Ratios of NBFCs-D  

5.23

Financial Performance of NBFCs-D

5.24

Monthly Financial Stress Indicators

5.25

Liquidity Injection/ Availability Since September 2008

6.1

Shift in the Composition of Aggregate Demand in India

6.2

Correlation between Growth of India and the World Economy

6.3

India’s Business Cycle Synchronisation (GDP Growth) with Advanced and Emerging Market Economies (EMEs) .

6.4

India’s Business Cycle Synchronisation (Household Consumption) with Advanced and Emerging Market Economies (EMEs)

6.5

World Trade Performance

6.6

Elasticity Response of India’s Commodity Exports to World Income  

6.7

Contribution of Consumption, Investment and Exports to Economic Growth

6.8

Some Determinants of Private Consumption in India

6.9

India’s Trade Performance

6.10

Composition of India’s Commodity Exports

6.11

Global Crisis and India’s Exports

6.12

Geographical Diversification of India’s Exports

6.13

Relative Price and Real Demand Effects on India’s Broad Direction of Exports (Long-run Co-integration Coefficients)

6.14

Principal Characteristics of Leading Export Industries

6.15

Firm-level Export Orientation  

6.16

Global Crisis and India’s Imports

6.17

Commodity Composition of India’s Imports

6.18

Geographical Diversification of India’s Imports

6.19

Import Intensity of Production: Firm-Level Evidence  

6.20

Pass-through of International Oil Prices to Export Prices of Developed  and Emerging Market Economies: Granger Causal Analysis  

6.21

Correlation of India’s Import Prices with Global and Regional Export Prices  

6.22

Correlation of India’s Import Price Index with Domestic Prices (WPI)  

6.23

Oil Imports Volume Growth

6.24

India’s Imports and Exports of Food  

6.25

India’s Dependence on Imports for Consumption Requirements  

6.26

Comparative Position of India among Top Service Exporters, 2008

6.27

Growth in Services Exports and Imports (US$)  

6.28

India’s Foreign Exchange Earnings from Tourism Sector

6.29

Software Services Export  

6.30

Software Services Exports of India  

6.31

India: Net Capital Flows  

6.32

Foreign Investment in India

6.33

Change in Reserves  

6.34

Contribution to Gross Domestic Savings

6.35

Gross Domestic Capital Formation at Current Prices

6.36

Quarterly Growth in GDP at Factor Cost

6.37

Cyclical Co-movements of GDP with Components of Aggregate Demand (Correlation Coefficient)

6.38

Growth in Demand Components of GDP (At 2004-05 prises)

6.39

Sectoral Growth in GDP (At 2004-05 prises)  

6.40

Industrial Growth in Advanced and Emerging Market Economies

6.41

Performance of Broad-Based Sectors in Industry

6.42

Growth Performance of 17 two-digit Manufacturing Industries  

6.43

Average Growth in Export-Oriented Manufacturing Industries (based on IIP)

6.44

Monthly Growth of Use-based Industries

6.45

Gap Between Targets and Achievements of Infrastructure Industries

6.46

Growth of Services Sector at Disaggregated Level