Parallels between Financial Crisis and the Great Depression

MacroEconomic

FISCAL STIMULUS PACKAGES IN INDIAN and GLOBAL CONTEXT

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Table of Contents

1. Introduction 4

2. Key Questions (we intend to answer) 5

3. Genesis of Global Financial Crisis 6

3.1 Components of the Crisis 7

3.2 Parallels between Financial Crisis and The Great Depression 8

4. Rationale behind Stimulus Packages 11

4.1 What is a Fiscal Stimulus? 11

4.2 Fallacies associated with Stimulus Packages 13

5. Stimulus Package in Indian Context 15

5.1 Impact of Financial Crisis on India 15

5.1.1 Initial Impact of the Sub-prime Crisis 15

5.1.2 Why the Indian Financial Sector has weathered the Storm? 16

5.1.3 Questions to be addressed 17

5.2. Fiscal Stimulus Packages in India 22

5.2.1 Stimulus Package 1 23

5.2.2 Stimulus Package 2 25

5.2.3 Stimulus Package 3 28

5.2.4 Appropriateness of the Fiscal Stimulus measures 28

5.2.5 Fiscal Stimulus’s impact on India’ Agro Sector 30

6. Stimulus Packages Globally 32

6.1 Announced Fiscal Stimulus Packages Globally 32

6.2 Content of global stimulus packages: the need for redistribution 33

6.3 In United States of America 34

6.4 In European Countries 39

6.5 In China 41

7. Concluding Remarks 44

8. Appendix 46

8.1 Appendix – 1 (Federal Fund rates in US, Monetary Policy Rates, Current account balances – Globally - as % of GDP) 46

8.2 Appendix – 2 (Share of banking assets held by foreign banks with majority ownership, 2006).. 47

8.3 Appendix – 3 (India’s 3 Fiscal Stimulus Plans – In Nutshell) 48

8.4 Appendix – 4 [Fiscal Stimulus Plans as % of GDP (Q4 2008 – Q1 2009)] 48

8.5 Appendix – 5 (Announced Stimulus Plans (Q4 2008 – Q1 2009) 49

9. Bibliography 50

Introduction

• The focus of this project is “Fiscal Stimulus” packages adopted by governments world over and their evaluation.

• We will start by stating few issues in the form of key

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