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Government bond markets have a mixed affect i.e. both favourable and non-favourable drivers. The favourable driver was a decline in inflation rate due to fall in crude oil prices, food commodities and metals. Another favourable development has been the ease in policy rates and projections of lower growth rates. When a lower growth rate is projected it will not put much pressure on Government.

The non-favourable drivers have been concerns over liquidity being deficient and a higher than expected government borrowing program as a result of higher than budge deficit.Consumer demand in our economy is certain to be hurt by the present crisis, leading to lower demand for Indian goods and services, thus affecting the Indian exports. (Already some of the industries are reducing their production).Due to this export- oriented units will be the worst hit impacting employment, reduced exports and puts pressure on interest rates.

The Indian banking sector will have the least impact due of financial crisis as statutory norms imposed by RBI from time to time. But banks which are engaged in cross border trade will be affected.From the above points India cannot wish to stay away from the negative impact of present Global financial Crisis. But should quickly focus on alternative remedial measures to restrict damage which may be caused to our economy and to sustain growth!

Dealing with recession

Most economic regions are now facing recession, or are in it. This includes the US, the Euro zone, and many others. At such times governments attempt to stimulate the economy. Standard macroeconomic policy includes policies to increase borrowing, reduce interest rates, reduce taxes and spend on public works such as infrastructure.Borrowing at a time of recession seems risky, but the idea is that this should be complimented with paying back during times of growth.

Likewise, reducing interest rates sounds like there would be less incentive for people to save money, when banks need to build up their capital reserves. However, as the real economy starts to feel the pinch, reduced interest rates are an attempt to encourage people to take part in the economy.

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* Contributed by: -
Prof. T. Srinivasa Rao has done M.Com, M.Phil. ICWAI (F)& EMBA. Also has Diploma in Export Management. He is currently working as Lecturer in Commerce at Andhra Loyola College Vijayawada, Andhra Pradesh.