MGT-333 TERM PAPER

Topic:”Impact of recession on Indian

Economy”

SUBMITTED TO :
SUBMITTED BY:

MRS SHIKHA DHAWAN PARUL BHALLA

B TECH NONS CSE MBA

RA17B1A28
7450070009

CONTENTS:

1. WHAT DOES RECESSION ACTUALLY MEAN?

2. IMPACT OF RECESSION (OVERVIEW)

3. WHY RECESSION OCCURS?

4. RECENT RECESSION HISTORY

5. IMPACT OF RECESSION ON INDIAN ECONOMY

6. CHANGED ECONOMIC RATES DUE TO RECESSION

7. IMPACT OF RECESSION ON INDIAN FAMILIES AND THE RESULTING

STRESS:

8. CORRECTIVE STEPS TAKEN TO CHECK RECESSION

9. BENEFITS OF ECONOMIC RECESSION

10. INDIAN INDUSTRY SECTORS TO PERFORM WELL IN CURRENT GLOBAL

RECESSION

11. DEPRESSION VS RECESSION - WHAT IS THE DIFFERENCE BETWEEN A

DEPRESSION AND A RECESSION?

12. REFERENCES

------------------------------------------------------------------------
  1.What does recession actually mean?

We all use the word 'recession' and we heard of it a lot these days as credit crunch and financial
woes sets in. Stock markets are always in red rather than in the green. Ever-declining charts for
shares are setting the investors around the world into a state of panic. Many people have been
using this word, but only some actually knows what it actually means.

 Definition of recession should be a substantial decline in activity across the economy,

lasting a longer period which is usually more than a few months.
 The activity across the economy are reflected by various economic data like, industrial
production, employment, gross income and wholesale-retail trade.
 From a technical point of view, a recession happens when there are two consecutive
quarters of negative economic growth as measure by a particular country's Gross
Domestic Product (GDP).
 Usually recession last from 6 to 18 months.So stock markets falling relentlessly does not
necessary means that the economy is undergoing a recession.
 Recession however is something that cannot be avoided as it is considered as a part of
the business cycle. For obvious reason, it is also the most dreaded and hated part of a
business cycle.
 National Bureau of Economic Research (NBER) is the official agency in charge of
declaring that the economy is in a state of recession.
2.OVERVIEW OF THE IMPACT OF RECESSION:

The recession in the US market and the global meltdown termed as Global recession
have engulfed complete world ecomony with a varying degree of recessional
impact. World over the impact has diversified and its impact can be observed from
the very fact of falling Stock market,

 Recession in jobs availiability

 companies following downsizaing in the existing available staff
 cutting down of the perks and salary corrections.
 example: The cut in salary for the pilots being 90 % can any one imagine such
a huge cut in salary.
 recession have turned down the growth process and have set the minds of economists and
others for finding out the real solution to sustain the economic growth and stability of the
market which is desired for the smooth running of the economy.

 3.WHY RECESSION OCCURS??

 An economy typically expands for 6-10 years and tends to go into a recession for about
six months to 2 years.

 A recession normally takes place when consumers loose confidence in the growth of the
economy and spend less.

 This leads to a decreased demand for goods and services, which in turn leads to a
decrease in production, lay-offs and a sharp rise in unemployment.

 Investors spend less as they fear stocks values will fall and thus stock markets fall on
negative sentiment.

 4.RECENT RECESSION HISTORY

 In a relatively deep recession in 1982, the GDP was falling and the unemployment rate
was rising. However, interest rates were falling quite rapidly. So this economic downturn
down was a recession.
  In 1992, there was another economic downturn where in the US experienced negative
growth for two quarters in a row. However, this downturn was mild as the unemployment
rate edged upward to about 7.5% but inflation was never a problem at this time. So, this
too, was a recession.
 Over the period January 2001 to December 2002, the Dow Jones Industrial Average
(DJIA) went down by 22.7%, while the Sensex fell by 14.6%. At first sight, that looks
comforting. But again, much depends on the starting date for the comparison. If the fall
from the record highs reached is taken, the DJIA was down 30% in December 2002 from
the heights it had reached in January 2000. In contrast, the Sensex was down 45%.
 In the 2008-2009 recession, the US experienced low or negative GDP growth and the
unemployment rate rose. However, interest rates were stable or even trended downward.
So this recession remained a recession. Economist hope now the GDP will continue to
grow because the unemployment rate is holding steadily at the high end of its historic
range and the possibility of inflation looms large. This is so because the Fed is trying to
pay down the national debt by rapidly printing dollars.

 5.IMPACT OF RECESSION ON INDIAN ECONOMY

There is a lot of talk about recession at the moment. There is a general understanding recessions
are bad, but what does it actually mean to be in a recession and how does this affect the average
consumer?The definition of a recession is negative economic growth for two consecutive
quarters. This means a fall in Real GDP, - lower National income and lower National Output.
However, it is worth noting some people talk of a recession, even when growth is very low.
 Rising unemployment (often unemployment is a delayed factor) i.e. it takes time for
unemployment to rise, but, even when the economy is recovering, it takes time for
unemployment to fall.

 Down sizing in the existing available staff. One danger meanwhile is of a dip in the
employment market. There is already anecdotal evidence of this in the IT and financial
sectors, and reports of quiet downsizing in many other fields as companies cut costs.

 Cutting down of the perks and salary corrections. Globally the financial sector
sacking the existing base of employees . Many companies has laid off their staffs, the
number of tourists inflow to india has come down, companies have cut down
compensations and perks etc, government. . The cut in salary for the pilots being 90 %
can any one imagine such a huge cut in salary.

 Rising Government Borrowing. A recession is bad news for the government budget. A
recession leads to lower tax revenues (lower income tax and corporation tax revenues)
and higher government spending on unemployment benefits. The UK is forecast to
borrow £60 billion, a recession could make this borrowing even worse in 2009. This
borrowing means higher taxes and higher interest payments in the future.

 Falling Share Prices. Generally a recession leads to lower profitability and lower
dividends. Therefore, shares are less attractive. Note share prices often fall in anticipation
of a recession. e.g. the recent falls in share prices are largely because the market expects a
recession soon. During the actual recession, share prices often increase in anticipation of
the economy recovering. Note also, falling share prices don't always mean a recession,
falling share prices can occur for many other reasons.

 Lower Inflation. Typically a recession reduces demand and wage inflation. This should
result in a lower inflation rate. However, this recession is complicated because of rising
 oil prices. Therefore, the forthcoming recession may actually occur simultaneously with
higher inflation - a term known as stagflation. But, a recession will definitely reduce
demand pull inflation pressures and encourages price wars on the high street as firms
seek to retain consumers.

 Falling investment. Investment is much more volatile than economic growth. Even a
slowdown in the growth rate (economy expanding at a slower rate) can lead to a
significant fall in investment.

 Effects on real estates:One of the casualties this time could be real estate, where
building projects are half-done all over the country and in this tight liquidity situation
developers find it difficult to raise finances. The only way out of the mess is for builders
to drop prices, which had reached unrealistic levels and assumed the characteristics of a
property bubble, so as to bring buyers back into the market, but there is not enough
evidence of that happening.

 Indian companies have major outsourcing deals from the US.

 India's exports to the US have also grown substantially over the years.

 More people have sold the shares in the indian share market than they bought in the
recent weeks. This has added to the fall of sensex to lower points.

 Slowdown in exports growth:

• For the first time in five years, India’s export growth has turned negative.
Exports for October 2008 contracted by 15% on a year-on-year basis. This
should not surprise as the OECD economies that account for over 40% of
 India’s export
market have been
slowing for
months.

• With the US and

EU already
entering a phase
of recession,
India’s export
growth had to
fall sharply. It must be noted this growth contraction has come after a robust
25%-plus average export growth since 2003. A low-to-negative growth in
exports may continue for sometime until consumption revives in the developed
economies.

 Other industries effected:A slowdown in export growth also has other implications for
the economy. Close to 50% of India’s exports — textiles, garments, gems and jewellery,
leather and so on — originate from the labour-intensive small- and medium-enterprises.

 Effect on share market:

• Most people have sold the shares.

• Foreign investors have pulled out from stock market.

• Stock broking houses are laying-off people.

• People have started saving money.

 Effect on it and real estate sector

• IT industries, financial sectors, real estate owners, car Industry, investment banking and
other industries as well are confronting heavy loss due to the fall down of global
economy.

• Inflation and psychological impact of the us crisis.

• benefits are missing as companies look to cut cost.

• India's export growth is also slowering down.

• one of the casualties this time are real estate, where building projects are half done al
over the country and in this tight liquidity situation developers find it difficult to raise
finance.

• Federation of Indian chambers of Commerce and Industry (FICCI) found that faced with
the global recession, inventories industries like garment, gems, textiles, chemicals and
jewellery had cut production by 10 per cent to 50 per cent.

 Effect on industrial sector

• starting new projects.

• Projects that are halfway to completion, or

companies that stuck with cash flow issues on
business that are yet to reach break even, will
run out of cash.

• Car, bike & truck sales down.

• Steel plants also cutting production.

• Government and other private companies are reluctant in starting new ventures and

• Hospitality and airlines are hit by poor demand.

• Companies in the private sector and government sector are hesitant to take up new
projects. And they are working on existing projects only.

• Projections indicate that up to one crore persons could lose their jobs in the correct fiscal
ending March. . The one crore figure has been compiled by Federation of Indian Export
Organisations (FIEO), which says that it has carried out an intensive survey.
• The textile, garment and handicraft industry are worse effected. Together, they are going
to lose four million jobs by April 2009, according to the FIEO survey.

 Effect on banking sector

• A sudden fall in the economy directly affected Lehman and Merill, eventually forcing
them to file a bankruptcy.

• Falling down of Lehman had a great

impact on the leading international
bank, ICICI Bank, a bank that had
invested in Lehman’s bonds. This
meltdown even have covered the Axis
Bank but not to a great extent.

• With all this, the Indian Sensex swung

violently downward, mainly because of the foreign companies pulling out credits to meet
high inflations.

• Central banks have worked to improve liquidity but are charging higher credits. The
interest rates have drastically increased from 11.5% to nearly about 16%.

 6.CHANGED ECONOMIC RATES DUE TO RECESSION

 The Repo Rate has been cut by 50 bps to 5.0 % in Mar, 2009

 The SLR has been cut by 100 bps to 24.0 % recently.

 The CRR has been cut by 100 bps in two stages.

  7.IMPACT OF RECESSION ON INDIAN FAMILIES AND THE
RESULTING STRESS:
 LACK OF TIME

With the economic development, there are increased opportunities, increased traffic on
roads with lower costing automobiles and higher spending prowess. All these lead to
increased commutation time to workplaces and back.It is a constant race against time, for, the
kids' schools' are more demanding, their studies demand more time, high lifestyles require
better jobs, better jobs require (mostly) long working hours and commutation time and what
heads the heap to stress is the overall inflated prices of commodities.

 THE MINDSETS, UPBRINGING AND STRUGGLES OF THE WORKING WOMEN

OF TODAY

Today's modern women is the seed of cut throat education environment. Parents in fact,
today, are more keen to make their daughters get higher education, in order to make them
self reliant and financially independent. This makes their daughters secure against any ill
fate, they might have to face in our still very orthodox society. As a consequence, the
modern woman is highly ambitious and does not like to make sacrifices on her career. She
expects her male counterpart to equally contribute in the homemaking. With working
parents' nine to five and in fact even longer working span of today, the household chores
and the upbringing of the kids are always on the jigsawing beam balance which is
somehow managed and controlled.

 STUDENTS CAUGHT IN THE MAZE OF OLD CLERICAL TYPE OF INDIAN

EDUCATION SYSTEM AND DEMANDS OF THE MULTINATIONAL COMPANIES.

History holds that our education system went through, but, moderate changes, after
Independence. The write-mug up and deliver system is still prevalent which only
reproduces copy notes mugged up brats. The values of attainment of general awareness
and practical know-how are hardly emphasized. Thus, the dilemma of competitive exams,
multinational companies and the general knowledge level hangs the largest on the heads of
the Indian youth. The memorization approach does not allow and teach the students to
think Independently. The American system, on the other hand, for example, lays stress on
the Individual development and expression of opinions from an early age.

 8.CORRECTIVE STEPS TAKEN TO CHECK RECESSION

 RBI needs to neutralise the outflow of FII money by unwinding the market stabilisation
securities that it had used to sterilise the inflows when they happened.
  This will mean drawing down the dollar reserves which is important at this hour.
 In the IT sector, there should be correction in salary offerings rather than job cutting.
 Public should spend wisely and save more.
 Taxes including excise duty and custom duty should be reduced to lighten the adverse
effect of economic crunch on various industries.
 In real estate the builders should drop prices, so as to bring buyers back into the market.
 Also, the government should try and improve liquidity , while CRR and SLR must be cut
further.

 Indian Companies have to adopt a multi-pronged strategy, which includes diversification

of the export markets, improving internal efficiencies to maintain cost competitiveness in
a tight export market situation .

 9.BENEFITS OF ECONOMIC RECESSION

We know there are many bad attributes, but very little is said about the positive changes it can
bring.

 Firstly, there are a number of undervalued stocks and bonds to purchase if you
happen to have some excess money lying around. I know most people don't, but it is a
definite possibility. There are great opportunities for long-term investing.
 Secondly, there are lower interest rates. Opportunities are available for those with
good credit ratings to borrow as much cash as they require. Mortgages are cheaper.
Though the mortgage crisis is one of the chief causes of this recession in the first place,
proper management may help us rebound through this financial avenue.
 Thirdly, there will be a number of tax breaks. This is important for home buyers
who were previously unable to afford putting 20% down on their new home.
 Finally, there will be help for college students who have high debts and low
incomes. The availability of grants will increase. For these students, this is one of the
obvious benefits of economic recession.

Without question, these benefits don't target the population as a whole, but there will be some
unforeseen positive outcomes in the future. Some benefits of economic recession will definitely
become evident.

 10.INDIAN INDUSTRY SECTORS TO PERFORM WELL IN

CURRENT GLOBAL RECESSION

As every business sector is affected by present global crisis and everybody is talking of slow
down in business, still in India there are few sectors which will grow in this adverse situation.
Lets have a look.
1. Food
No one can survive without basic food material like milk, vegetables and drinking water. Food
processing companies will not be affected much and rather will earn profits by increasing the
prices. These are the basic needs which we as a common man can not produce by our self.

According to MFPI, the food processing industry in India was seeing growth even as the world
was facing economic recession. According to the minister, the industry is presently growing at
14 per cent against 6-7 per cent growth in 2003-04.

2. Railway
As the aviation sector has been affect much badly and resulting in sharp rise in the air ticket rates
the frequent travelers will prefer railways to cut the cost of traveling and this will result in
increased traffic in railways and long queues at railway booking counters. The freight traffic of
Indian Railways has continued to grow in the last few months, albeit at slow pace, indicating
only marginal impact of the global recession on the Indian economy.

The Railways registered 13.87% growth in revenue to Rs 57,863.90 crore in the first nine months
ended December 31, 2008. While total earnings from freight increased by 14.53% at Rs
39,085.22 crore during the period, passenger revenue earnings were up 11.81% at Rs 16,242.44
crore. The Railways have enhanced freight revenue by increasing its axle loading, improving
customer services and adopting an innovative pricing strategy.

3. PSU Banks
As seen in the private sector much of the job cuts due to global slowdown, its the PSU sector
Banks which gained much confidence due to job safety and security. More and more people are
likely to turn towards government institutions, particularly banks in the quest for safety and
security.

A report "Opportunities in Indian Banking Sector", by market research company, RNCOS,

forecasts that the Indian banking sector will grow at a healthy compound annual growth rate
(CAGR) of around 23.3 per cent till 2011.

4. Education
As Education is considered as the basic necessity and in India it is seen as a long term investment
by parents and with respect to the demand still there is a huge supply gap. The craze to study in
foreign university among the Indian youth still alive which will prompt foreign education
institute to target India provided vast young population willing to join. We will see more and
more foreign educational institutions to come up in India in recent coming years.

Huge government as well as private investment is likely to flow into the Indian educational
system. D E Shaw, a US$ 36 billion, global private equity firm is planning to invest around US$
200 million in the Indian education sector.

5. Telecom
People will not stop to communicate with each other due to global crises rather it has been seen
that it will increase much particularly with mobile communication. With cheap cell phones
available in the Indian market and cheaper call rates, the sector has become the necessity and
primary need of everyday life.

Telecom sector, according to industry estimates, year 2008 started with a subscriber base of 228
million and will likely to end with a subscriber base of 332 million - a full century ! The
Telecom industry expects to add at least another 90 million subscribers in 2009 despite of
recession. The Indian telecommunications industry is one of the fastest growing in the world and
India is projected to become the second largest telecom market globally by 2010.

6. IT
Recent news shown that Indian IT sector will grow 30-40% next year. And on the other side to
survive in current slowdown, industries have to decrease the cost and for that they will resort to
customized IT solutions which will further boost up the software solution demand.

India is fast becoming a hot destination for outsourced e-publishing work. As per a
Confederation of Indian Industry (CII) report, the industry is growing at an annual rate of 35 per
cent and India's outsourcing opportunities in the value-added and core services such as copy
editing, project management, indexing, media services and content deployment will help make
the publishing BPO industry worth US$ 1.46 billion by 2010.

7. Health care
India in case of health care facilities still lakes the adequate supply. In Health care sector also
there is huge gape between demand and supply at all the levels of society. Still there are so many
urban areas were you could hardly find any multi specialty hospital. And in case of metros the
market sentiments itself created a need of psychological consultation.

Healthcare, which is a US$ 35 billion industry in India, is expected to reach over US$ 75 billion
by 2012 and US$ 150 billion by 2017. The healthcare industry is interestingly poised as it strives
to emerge as a global hub due to the distinct advantages it enjoys in clinical excellence and low
costs.

8. Luxury products
The high and affluent class of society will not be affected much by this global crises even if their
worth is reduced significantly. They will not change their life style and will not stop spending on
luxurious goods. So luxurious product market will not be affected and in fact to maintain the
lifestyle those affluent will spend more for it. Luxury car makers are pouring in to woo the
nouveau riche (Audi, BMW are the most recent entrants).

According to recent research on luxury trends, the number of families with annual incomes of
more than $230,000 will have more than doubled from 20,000 in 2002 to 53,000 by the end of
2005 and will grow to 140,000 by 2010.

9. M&A & Marketing Consultants

As in the current business slow down survival will be the main focus, the marketing and
management consultants will be called for to reduce the costs and to show the ways to survive
and stay in market. Others may join hands to fight with this situation together will call for the
Marketing & M&A consultants. In a booming market there are growth strategies and M&A
opportunities to advise on. When businesses are cutting back, consultancies will be right there to
help clients decide where to wield the axe.

According to Ministry of Commerce and Industry's estimation, the current size of consulting
industry in India is about Rs.10000/- crores including exports and is expected to grow further at a
CAGR of aprox. 25% in next few years

10. Media and Entertainment

In current bad times, where people are losing jobs and getting enough time to watch TV, they
will seek entertainment at home and hence advertising revenues will increase for the commercial
channels. Also businesses like production of religious texts and religious materials, religious
channels will do well. The TRP of religious channels will increase compare to the other
entertaining/commercial channels.

According to a report published by the Federation of Indian Chambers of Commerce and

Industry (FICCI), the Indian M&E industry is expected to grow at a compound annual growth
rate (CAGR) of 18 per cent to reach US$ 23.81 billion by 2012. According to the PWC report,
the television industry was worth US$ 5. 48 billion in 2007, recording a growth of 18 per cent
over 2006. It is further likely to grow by 22 per cent over the next five years and be worth US$
12. 34 billion by 2012.

11.DEPRESSION VS RECESSION - WHAT IS THE DIFFERENCE

BETWEEN A DEPRESSION AND A RECESSION?

 A Recession

When GDP shows negative growth for two quarters in a row it is said the country has slipped
into a recession. The explanation of a recession is as simple as this. A country will stay in
recession until it has grown for two consecutive quarters. After it has, the country will be in a
period of prosperity.

 A Depression

If a country experiences a period of time where it is in recession and the unemployment rate
continues to rise and interest rates rise as well, the country has slipped into a depression. During
most downturns businesses slow down and because of this the unemployment rate rises; though
it doesn't always do so.

What is almost always true is when the economy slows down and citizens don't have enough
money to bid prices of goods and services up, the inflation rate will hold steady or fall because of
this lack of demand. However, if the country is in a position where it is experiencing inflation
even with lower demand, it will be in a depression. This is an abnormal condition and would
usually require government intervention such as overprinting the country's currency to cause
inflation while the economy is slowing down.
 Refrerences:

http://econ.economicshelp.org/2008/07/impact-of-recession.html

http://what recession means.html

www.articlesbase.com

http://Benefits of Economic Recession.html

http://10 Indian Industry Sectors to Perform Well in Current Global Recession.html

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