Meaning of Financial Crises

• A situation in which the supply of money is outpaced by the demand for money. This means that liquidity is quickly evaporated because available money is withdrawn from banks (called a run), forcing banks either to sell other investments to make up for the shortfall or to collapse. • The term financial crisis is applied broadly to a variety of situations in which some financial institutions or assets suddenly lose a large part of their value. In the 19th and early 20th centuries, many financial crises were associated with banking panics, and many recessions coincided with these panics.

In addition. along with China. based on its recent high growth from a low per capita income base. the “strong” domestic financial sector was also seen to be immune to shocks from the international financial system. Indeed. • However. there were arguments that India. . and even involved a faulty assessment of the previous boom. even as deflationary fiscal policies. is “decoupled” from the global system and capable of becoming an autonomous growth pole. poor employment generation and agrarian crisis kept mass consumption demand low. especially in urban areas. and a young population leading to falling dependency ratios. Recent high economic growth in India was fundamentally dependent upon greater global integration and related to the deregulation of finance combined with fiscal concessions that spurred a consumption boom among the top two deciles of the population. it turns out that this presumption was wrong.Introduction • It took some time for policymakers and analysts in India to recognize both the speed and the intensity of the effects of the global crisis on India.

THE INDIAN APPROACH IN CURRENT SCENARIO • Today India stands erect to face this financial crunch with many advantages and strengths. According to him a recession is defined as two successive quarters of contraction of GDP. • Giving a positive projection on the country’s economic scenario. P. Finance Minister P Chidambaram says India’s growth would moderate in this difficult year.M Manmohan Singh said India could regain its annual growth rate of 8% to 9% as the world’s economy could recover partially the present crisis by September this year. but would still be second-fastest in the world at the rate of 7-8 per cent. One of the major strength is its nuclear technology which will aid India to battle out its biggest problempower. . • Cautioning against the use of word “recession” for Indian economy.