Global economic meltdown and its effects on Indian economy
Hi friends, in this article let us see about the recession on the so called CREDIT CRUNCH and also about the Global economic meltdown and its effects on Indian economy.
INTRODUCTION:
Economy, the word itself describes the strength and capacity of the world to move forward into innovative future. The 20th century saw one of the greatest changes in economy. Economy of the countries was no more independent. If any country’s economy rose or fell, it had an impact on other countries too. This was a great change that had both positive and negative impacts. Some positive impacts were the global improvement of Information Technology industry. But it was responsible for recent recession and depression of 1929.
HOW IT ALL STARTED?
For something to begin there is always a reason. It is the same in this case too. The United States, the most developed country in the world and of course it was the largest consumer of most of the goods produced worldwide. The U.S has imports much higher than its exports. It paid in dollars for its imports and enjoyed world class sophistication as U.S dollar was the standard money for all the international transactions. First I will have to explain what a currency note or promissory note.
A currency note is a promissory bill. It doesn’t have any value for itself and after all it’s just paper or plastic. For example if you buy some chocolates for rs.100, the 100 rupee bill means that you owe the shopkeeper who gave chocolates for 100 rupees with some other goods or material worth 100 rupees. So this is how currency system works. It is the same with imports too. If U.S imports for $1 billion from China, then it means he owes goods worth $1 billion to China. The U.S can take back its $1 billion after it gives China’s goods worth $1 billion. But it doesn’t happen. So U.S actually has $1 billion indebted to China. As exports were very low, for the U.S, its debts rose. And presently it is over 2x10^9 trillion dollars for U.S. But as U.S dollar was at international transaction, nobody worried about these huge debts. All countries have billions of U.S dollars with them hoping that one fine day U.S would give them the worth goods and tae those dollars back. Now all the countries are slowly but steadily losing their hope on U.S dollar and U.S itself. The recession’s main cause was this losing of hope. Whatever Obama’s Government does or even if it sells whole of the U.S those soaring debts can’t be cleared.
U.S’s UNCONTROLLED CONSUMPTION OF GOODS AND MORTAGE PROBLEM:
As U.S dollars were used as standard transactions, it never lost its value in the past, but future is to change the face of U.S and its currency. U.S’s unlimited imports were due to growing ability of its people to spend. The outlook of American people is as follows:
• No saving money for future.
• If anything new, put the old but good one to trash.
• Never buying on full cash only on financial installments pledging their salary.
Now what the world suffers is also due to these 3 important points.
All investment banks and commercial banks began like mad dog in a race competing with one another and started giving anything purchasable or installments. Even houses were given on installments. This was the breaking point of the twig; on one side the consumption and on the other side the mounting international debts. The breaking point came, many people lost jobs and so did they lose their house, cars and everything they bought on installments. The banks seized all their property and couldn’t find anyone to buy the seized property. So the rates fell down; real estate business crashed. All the U.S companies have over produced and over imported, finding nobody to buy it; prices fell, companies closed, bankrupts, bank closed.
EFFECTS ON INDIAN ECONOMY:
Many companies in India mostly I.T companies run on projects from U.S companies. As U.S companies closed, the projects became fewer and the mighty Indian I.T industry started to crumble and it is in the process of crumbling move.
One may ask “Even after U.S collapsed, why does the dollar exchange rate go up to Rs.52 per dollar?”. The answer is simple. Many U.S companies have invested billions of dollars in India hoping to get good returns. As their home economy is crumbling, those companies started to sell their Indian shares all of a sudden in Indian stock markets. So obviously creating a great demand for U.S dollars. So this is why dollar exchange rates are very high. One day this rate would fall from Rs.50 to 50 paisa when all U.S companies have sold their shares in India.
CONCLUSION:
Economy is very much like a cloth. A stitch in time saves nine. Else it would crackdown as it has now done. It’s the old saying again, ‘Those who sow the seeds have to reap the harvest’.
But now, all the darkness that was prevailing for more than a year, started to vanish. The lime light has come. Thus Indian I.T industry has slowly started picking up pace and we hope it travels in a safe, secure and a developing path.
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