“Huge borrowings and negative savings are the reasons”
MADURAI: America is the root cause for current global economic crisis as people of that country indulged in huge borrowings with negative savings, said T. C. Venkat Subramanian, Chairman and Managing Director, Export-Import Bank of India.
“The sub-prime crisis of US turned out to be toxic acid for American economy. People went for mortgage loans for their homes and borrowed heavily with no focus on savings. Negative savings rate in that country made things worse when the financial system got affected,” he observed.
The EXIM Bank chief was delivering the convocation address at the 23rd convocation of Thiagarajar School of Management (TSM) here on Saturday. He said that it was from America that the meltdown spread to the European Union and Japan too.
“America’s imports came down and hence it affected other countries. The three major economies of the US, the European Union and Japan had gone down simultaneously,” he noted.
Mr. Subramanian explained how the effect of slowdown was felt in India, particularly in the context of imports and exports.
“The remittances from Indian workforce has been falling. Some countries had cut down the salaries or asked employees to leave…Our estimate is that there will be 10 to 15 per cent drop in remittance of money from abroad,” he indicated.
According to him, there should be a close watch on India’s foreign exchange reserves since the figure for 2008-09 stood at only 248 billion US dollars as compared to 309 billion US dollars for 2007-08.
Similarly, the forex inflow into India through Foreign Direct Investment, stock markets and Foreign Institutional Investors had come down from 64 billion dollars to 13 billion dollars during the fiscal that just ended.
“In my opinion, the IT sector in India will revive itself fast because other countries are looking at cutting costs. Things will improve by 2010,” Mr. Subramanian said.
Manikam Ramaswami, Chairman, Board of Governors, TSM, in his welcome address said that students graduating out of the college must stay positive despite the global crisis and shrinking of the economy.
“We need to accept the reality and learn from experience,” he said. M. R. G. Appa Rao, Director, TSM, who presented the annual report for 2008-09 academic year, said that TSM had applied to the Madurai Kamaraj University to get sanction for a research centre and to the UGC for autonomous status. Around 140 students, who completed their MBA and MCA courses, received their degrees.