ECONOMICS PROJECT

Impact of U.S Economy on Indian Economy

Submitted by :-Yatin Singh

Roll no. :-3207089
Sri venkateshwara college
Impact of U.S Economy on Indian Economy

What is an economy

The economy is the realized social system of production, exchange, distribution, and
consumption of goods and services of a country or other area. A given economy is the end
result of a process that involves its technological evolution, civilization's history and social
organization, as well as its geography, natural resource endowment, and ecology, among other
factors. These factors give context, content, and set the conditions and parameters in which an
economy functions. An economy does not have to be a specific size. An economy can mean
the economy of a city (local economy), a country (national economy) or the world as a whole
(international economy), provided that it is involved in the production of goods and services.

"The economy" is the term used to describe the system of making, distributing, and
consuming material goods and services. The many facets of a country's economy include the
spending habits of consumers, labor issues, employment patterns, the banking and financial
industries, taxes, and the government regulation designed to help keep the economy running
smoothly. There are two distinct branches of economics: macroeconomics and
microeconomics. Macroeconomics is the study of the economic big picture, measuring broad
trends in the economy, such as employment or inflation, as well as the way these trends
interact. Microeconomics analyzes the economy on a smaller scale, focusing on individual
consumers and companies.
United States of America
Overview of economy

Strength of U.S economy

The United States has the largest, most technologically-advanced, and most diverse economy
in the world. While the United States accounts for only about 4 percent of the world's
population, its GDP is 26 percent of the world's total economic output. The American
economy is a free-market, private enterprise system that has only limited government
intervention in areas such as health care, transportation, and retirement. American companies
are among the most productive and competitive in the world. In 1998, 9 of the 10 most
profitable companies in the world were American (even the non-U.S. exception, Germany's
Daimler-Chrysler, has a substantial part of its operations in the United States). The United
States also has a clear edge over the rest of the world in many high-tech industries, including
computers, medical care, aerospace, and military equipment.
In the 1990s, the American economy experienced the second-longest period of growth in the
nation's history. The economy grew at an average rate of 3-4 percent per year and
unemployment fell below 5 percent. In addition, there were dramatic gains in the stock market
and many of the nation's largest companies had record profits. This long period of growth
ended in 2001, when the economy slowed dramatically following a crash in the high-
technology sector.
The United States has considerable natural resources. These resources include coal, copper,
lead, phosphates, uranium, bauxite, gold, iron, mercury, nickel, silver, tungsten, zinc,
petroleum, natural gas, and timber. It also has highly productive agricultural resources and is
the world's largest food producer. The economy is bolstered by an excellent, though aging,
infrastructure which makes the transport of goods relatively easy.
Despite its impressive advantages, the American economy faces a number of problems. Most
of the products and services of the nation are consumed internally, but the economy cannot
produce enough goods to keep up with consumer demand. As a result, for several decades the
United States has imported far more products than it exports. This trade deficit exists entirely
in manufactured goods. The United States actually has trade surpluses in agriculture and
services. When adjusted for the surpluses, the U.S. trade deficit in 2000 amounted to a record
$447 billion. The United States has been able to sustain trade deficits year after year because
foreign individuals and companies remain willing to invest in the United States. In 2000, there
was $270 billion in new foreign investment in American companies and businesses.
Another major problem for the American economy is growth of a 2-tier economy, with some
Americans enjoying very high income levels while others remain in poverty. As the
workplace becomes more technologically sophisticated, unskilled workers find themselves
trapped in minimum wage or menial jobs. In 1999, despite the strong economic growth of the
1990s, 12.7 percent of Americans lived below the poverty line. There are other wage
problems in the United States. Although the economy has grown substantially, most of the
gains in income have gone to the top 20 percent of households. The top 10 percent of
households earned 28.5 percent of the nation's wealth, while the bottom 10 percent accounted
for only 1.5 percent. There is also a growing number of Americans who are not covered by
medical insurance.
. Together, services account for approximately 80 percent of the country's GDP.
Manufacturing accounts for only 18 percent, while agriculture accounts for 2 percent.
Financial services, health care, and information technology are among the fastest growing
areas of the service sector. Although industry has declined steeply from its height in the
1950s, the American manufacturing sector remains strong. Two of the largest American
corporations, General Electric and General Motors, have manufacturing and production as
their base, although they have both diversified into the service sector as well. Meanwhile,
despite continuing declines, agriculture remains strong in the United States. One of the main
trends in the agricultural sector has been the erosion of the family farm and its replacement by
the large corporate farm. This has made the sector more productive, although there has also
been a decrease in the number of farmers and farm workers.
Since the middle of the 20th century, the United States has aggressively pursued free and open
trade. It helped found a number of international organizations whose purpose is to promote
free trade, including the General Agreement on Tariffs and Trade (GATT), now known as the
World Trade Organization (WTO). It has also engaged in free trade agreements with particular
nations. The North American Free Trade Agreement (NAFTA) between the United States,
Canada, and Mexico is an example of this. One continuing problem for American companies
engaged in foreign trade is that the United States is much more open to trade than many other
nations. As a result, it is easy for foreign companies to sell their goods and services in the
United States, but American firms often find it difficult to export their products to other
countries.

The American economy depends on a combination of natural resources, labor, and technology
to produce and distribute goods and services. It is the world's largest and, in many ways, most
efficient economy: Americans make up just 5% of the world's population but produce more
than 20% of its economic output. According to the World Bank in World Development
Indicators (September 2004), the U.S. total GDP in 2003, at $10.9 trillion was more than
double the nearest competitor, Japan, which had a GDP of $4.3 trillion. Other leading
economies in 2003, according to the World Bank data, included Germany ($2.4 trillion), the
United Kingdom ($1.8 trillion), and France ($1.7 trillion).
Indian Economy

India is the seventh largest and second most populous country in the world. India's economy
is on the fulcrum of an ever increasing growth curve. With positive indicators such as a stable
8-9 per cent annual growth, rising foreign exchange reserves, a booming capital market and a
rapidly expanding FDI inflows, India has emerged as the second fastest growing major
economy in the world.
The economy has been growing at an average growth rate of 8.8 per cent in the last four fiscal
years (2003-04 to 2006-07), with the 2006-07 growth rate of 9.6 per cent being the highest in
the last 18 years. Significantly, the industrial and service sectors have been contributing a
major part of this growth, suggesting the structural transformation underway in the Indian
economy.
For example, industrial and services sectors have logged in a 10.63 and 11.18 per cent growth
rate in 2006-07 respectively, against 8.02 per and 11.01 cent in 2005-06. Similarly,
manufacturing grew by 8.98 per cent and 12 per cent in 2005-06 and 2006-07 and transport,
storage and communication recorded a growth of 14.65 and per cent 16.64 per cent,
respectively.
Another significant feature of the growth process has been the consistently increasing savings
and investment rate. While the gross saving rate as a proportion of GDP has increased from
23.5 per cent in 2001-02 to 34.8 per cent in 2006-07, the investment rate-reflected as the gross
capital formation as a proportion of GDP-has increased from 22.8 per cent in 2001-02 to 35.9
per cent in 2006-07.
During April-December 2007-08, gross fixed capital formation has accelerated to 32.6 per
cent of GDP, from 30.5 per cent of GDP in the corresponding period in 2006-07.
The 2007-08 Fiscal Year
The growth process continues apace. On the back of 9.6 per cent growth April-December
2006-07, GDP grew by 8.9 per cent during April-December 2007-08.
•According to the third advance estimates of crop production by the agriculture ministry,
food grain output grew by 4.6 per cent in 2007-08, nearly four times the average annual
growth of 1.2 per cent between 1990 and 2007.
•Overall industrial production grew by 8.3 per cent during 2007-08. Significantly,
manufacturing sector grew at the rate of 8.7 per cent.
•Services grew by 10.4 per cent in April-December 2007, on the back of 11.4 per cent
during the corresponding period in 2006-07.
•Manufacturing grew by 8.7 per cent during April-February 2007-08, on the back of 12.5
per cent growth during 2006-07.
•Core infrastructure sector continued its growth rate recording 5.6 per cent growth in
2007-08.
•While exports grew by 23.02 per cent during 2007-08, imports increased by 27.01 per
cent in the same period.
•Money Supply (M3) has grown by a robust 20.7 per cent growth (year-on-year) as of
end-March 2008, compared to 21.5 per cent last year.

With such a robust growth rates, the revised estimates of the Central Statistical Organisation
(CSO) expects the economy to grow by 9 per cent in 2007-08, higher than the earlier
projection of 8.7 per cent. This is in tune with the high average real GDP growth of 8.7 per
cent per annum during the five-year period, 2003-04 to 2007-08. Further, this would the third
consecutive year, when the economy has grown by 9 per cent and above.

Per Capita Income

Along this significant acceleration in the growth rate of Indian economy, India's per capita
income has increased at a rapid pace, exceeding an earlier forecast made by Goldman Sachs
BRIC report which estimated India's per capita to touch US$ 800 by 2010 and US$ 1149 by
2015.
Per capita income has increased from US$ 460 in 2000-01 to almost double to US$ 797 by
the end of 2006-07. In 2007-08, India's per capita income is estimated to be over US$ 825.07,
according to the advance estimates of the Central Statistical Organisation (CSO). Further,
India's per capita income is expected to increase to US$ 2000 by 2016-17 and US$ 4000 by
2025. This growth rate will, consequently, propel India into the middle-income category.

Some Highlights
Reflecting the favourable prospect of growth rate of Indian economy, the orders received
Indian companies have increased by a whopping 68.6 per cent to US$ 32.48 billion during
January-October 2007 compared to US$ 19.26 billion in the same period last year.
•India is among the five countries sharing 50 per cent of the world production (or GDP).
•FDI inflows have jumped by almost three times to US$ 15.7 billion in 2006-07 as against
US$ 5.5 billion in 2005-06.
•The aggregate income of the top 500 companies rose by 28.4 per cent in 2006-07 to total
US$ 469.51 billion.
•India's National Stock Exchange (NSE) ranks first in the stock futures and second in
index futures trade in the world.
•Twenty Indian firms have made it to the list of Boston Consulting Group's 100 New
Global Challenger Giants list.
•According to a study by the McKinsey Global Institute (MGI), India's consumer market
will be the world's fifth largest (from twelfth) in the world by 2025.
•The number of companies incorporated has increased at an annual average of 55,000
companies in the last two years to 865,000, from 712,000 companies at the end of 2005.
•Four Indians and seven Indian microfinance companies make it to the Forbes list of
Top10 world's wealthiest CEOs World's Top 50 Microfinance Institutions, respectively.
•India has the most number of private equity (PE) funds operating amongst the BRIC
markets.

Why Indian Economy future is in hand of

American Economy

Factors

1.The effect of military expenditure

Most economic models have shown that military spending by the United States Government
has diverted resources from productive uses such as consumption and investment, which has
ultimately slowed growth and reduced employment. Estimates project that by 2017 the Iraq
War and War in Afghanistan will have cost the U.S. budget between $1.7 trillion and $2.7
trillion. Interest on money borrowed to pay those costs could alone add a further $816 billion
to that bottom line. Nobel Prize-winning economist Joseph E. Stiglitz even says that
estimating all economic and social costs might push the U.S. war bill up toward $5 trillion by
2017. This figure includes the cost to the U.S. economy of global oil prices that have
quadrupled since 2003, an increase blamed partly on the Iraq war.
2. GDP
International gross domestic product (GDP), top 10 countries, 2003 World
$49,000,000,000,000
Adapted from "Rank Order GDP," in Rank Order GDP, CIA World Fact Book
1 United States $10,400,000,000,000
2 China $5,700,000,000,000
3 Japan $3,550,000,000,000
4 India $2,660,000,000,000
5 Germany $2,184,000,000,000
6 France $1,540,000,000,000
7 United Kingdom $1,520,000,000,000
8 Italy $1,438,000,000,000
9 Russia $1,350,000,000,000
10 Brazil $1,340,000,000,000

United state of America’s GDP growth

 statistics
GDP (PPP) (IMF)
13.8
(US$Billions)
GDP (PPP) (CIA)
13.8
(US$Billions)
GDP Growth (IMF) (%) 2.2%
GDP Growth (CIA) (%) 2.2%
GDP Per Capita (PPP) (IMF)
45,845
(US$)
GDP Per Capita (PPP) (CIA)
45,800
(US$)
Agriculture: 0.9%
GDP by Sector (%) Services: 78.5%
Industry: 20.5%
Inflation (%) 2.9%
Population Below the Poverty
12.0%
Line (%)
Labour Force (Millions) 153.1
Farming, forestry and fishing: 0.6%
Manufacturing, extraction, transportation and crafts:
Labour Force by Occupation 22.6%
(%) Managerial, professional and technical: 35.5%
Sales and office: 24.8%
Other Services: 16.5%
Unemployment (%) 4.6%
Leading indsutrial power in the world, highly
diversified and
technologically advanced; petroleum, steel ,motor
Main Industries
vehicles,
aerospace, telecommunications, chemicals, electronics,
food processing, consumer goods, lumber, mining.

Sources: CIA World Factbook, IMF

GDP

economic indicators 2003 2004 2005 2006 2007

GDP (US$Billions) 10,961 11,686 12,434 13,195 13,484
GDP Growth (%) 3.1% 4.4% 3.2% 3.2% 2.2%
GDP Per Capita (US$) 37,685 39,811 41,969 44,118 45,845
GDP Per Capita (PPP)
37,685 39,811 41,969 44,118 45,845
(US$)
Inflation (%) 2.3% 2.5% 3.2% 2.5% 2.9%

India’s GDP growth

 1 1 1 2 2
1999-
ITEMS 990- 991- 998- 000- 001-
2000
91 92 99 01 02
Growth rates (per cent):
4 5.4
GDP at constant factor cost 5.6 1.3 6.5 6.1P
.0Q A

GDP at constant factor cost 8.2 0.6 4.1 6.7 5 2.3 c

Electricity 7.8 8.5 6.5 7.3 4 2.7 c

-6.6 6.9
Agricultural production 3.8 -2 7.6 -0.9
P P
-6.6 6.8
Foodgrains production 3.1 -4.5 5.9 3
P P
0.6
Exports (BOP in terms of US $) 9 -1.1 -3.9 9.5 19.6
b
-24. 0.3
Imports (BOP in terms of US $) 14.4 -7.1 16.5 7
5 b
Food grains production (Million 176. 168. 203. 195. 209.
209.8
tones) 4 4 6 9P 2P
264. 448. 499. 383.
Electricity generated (million KWH) 287 480.7
3 5 6 2c
17.9 24.6 42.0 45.6 47.4
Average exchange rate (Rs./US$) 43.33
4 5 7 8 9d
 11.2
Growth rate of money supply (M3) 15.1 19.3 19.4 14.6 16.7
e
Average rate of inflation (per cent)
In terms of WPI 12.1 13.6 5.9 3.3 7.1 4.4 f
4.2
In terms of CPI 13.6 13.9 13.1 3.4 3.7
g

GDP
$3.305 trillion (2008 est.)[1]
(PPP)
GDP
9% (2007)
growth
GDP per
$2,600 (PPP)
capita
GDP by
agriculture: 17.8%, industry: 29.4%, services: 52.8% (2007 est.)
sector
Inflation
6.4% (CPI) (2007 est.)
(CPI)
Labour
516.4 million (2007 est.)
force
Labour
force
by agriculture: 60%, industry: 12%, services: 28% (2003)
occupati
on
Unempl
7.2% (2007 est.)
oyment
Main
textiles, chemicals, food processing, steel, transportation equipment, cement,
industri
mining, petroleum, machinery, software, services
es
External
Exports $163 billion[3] (Financial Year 2007-2008)
Export petroleum products, textile goods, gems and jewelry, engineering goods,
goods chemicals, leather manufactures
Main
export US 15%, the People's Republic of China 8.7%, UAE 8.7%, UK 4.4% (2007)
partners
Imports $230.5 billion f.o.b. (2007 est.)
Import
crude oil, machinery, gems, fertilizer, chemicals
goods
Main
the People's Republic of China 10.6%, US 7.8%, Germany 4.4%, Singapore
import
4.4%
partners
3.Trade
Though, the trade between the United States and India is relatively small, it has risen sharply
over the years. In terms of India's major trading partner, USA continues to lead.
However, India's share in US trade is 24th in US export and eighteenth in US imports.
The two countries have been making efforts to strengthen institutional structure of bilateral
economic relations. Signing of "India-US Economic Dialogue" by Indian PM AB Vajpayee
and US President Bill Clinton in 2003, aims at deepening the Indo-American partnership
through regular dialogue and engagement.

India's sizable population and growing middle and higher income class makes India a
potentially large market for U.S. goods and services. According to the figure from
government sources, U.S. exports to and imports from India in 2003, totalled US $5.0 billion
and US $13.1 billion, respectively.

India's main exports to US are precious stones, metals (worked diamonds & gold
jewellery), Woven apparel, Knit apparel, miscellaneous textile article, Fish and seafood
(frozen shrimp), Textile floor coverings, Iron/steel products, Organic chemicals and
Machinery (taps, valves, transmission shafts, gears, pistons, etc)

India imports sophisticated machinery (computers and components, gas turbines, telecom,
etc), Electrical machinery (recording/sound media), Medical and surgical
equipment/instruments, Aircraft, spacecraft (small aircraft), Precious stones, metals
(diamonds, not mounted or set), jewellery, Organic chemicals, Plastic, Cotton and cotton
waste and Wood pulp, etc.

India and US (United States)

Both India and the United States (US) play a significant role in shaping the global economy.
While US is the world's largest economy, India is the second, fastest growing major economy.
The complementarities between them draw the two countries to leverage the opportunities
available from each other to form a robust economic relationship. The US is India’s largest
export destination and also one of the leading foreign investors in India. Further, with the
Indian economy estimated to grow to 90 per cent of the US economy by 2050, the growing
Indo-US relationship will be a decisive force shaping the contours of the world economy in
the 21st century.
In a move to further improve economic relations, both the countries had two rounds of
exploratory talks in the first half of 2008 on the proposed Bilateral Investment Treaty, and
decided to start formal negotiations soon. India also plans to sign a Bilateral Aviation Safety
Agreement with the USA to boost ties and encourage US Aviation Companies to invest in
India. US was the partner country at the ‘India Aviation 2008’, held in October this year in
Hyderabad.

Trade and economic cooperation is a significant factor for the strengthening of India-US
relations, which is apparent in the increasing bilateral trade volume.
Bilateral trade between India and US amounted to US$ 33.9 billion in 2007-08.
US exports aircraft and aviation machinery, other machinery, optical and medical instruments,
precious stones and metals, and organic chemicals to India. India is one of the most important
export destinations for the US and 2007 saw an astonishing growth rate of 75 per cent in its
exports to India. In the first half of 2008, it was still a strong 26 per cent. 2008 has seen an
increase in export of fertilisers from the US.
India mostly exports gems and jewellery, organic chemicals and engineering goods and
textiles to the US. India’s IT, ITES services exports, research and development (R&D) and
Engineering services exports to the US amounted to around US$ 24 billion in 2007.
India’s merchandise exports to the US grew at 10.05 per cent, going up to US$ 24.02 billion
in 2007 from US$ 21.83 billion in 2006. US exports of merchandise to India grew to US$
17.59 billion in 2007, up from US$ 10.06 billion in 2006, increasing by 74.94 per cent.
During 2007-08, merchandise exports from India to US went up by 9.81 per cent to reach
US$ 20.7 billion against US$ 18.8 billion in 2006-07. Merchandise exports from US to India
grew by 12.57 per cent to reach US$ 13.2 billion in 2007-08 against US$ 11.7 billion in 2006-
07.
In the period between Jan-August 2008, India's Merchandise exports to the US amounted to
US$ 17.14 billion, an increase of 9.47 per cent from 2007. US exports to India totalled US$
12.72 billion at an increase of 21.8 per cent.

US Investments in India

India's rapidly expanding economy along with a booming consumer market and easy
availability of skilled personnel have been instrumental in attracting several American
companies to invest in India. The overall foreign direct investment (FDI) equity flow into
India from the US during April 2000-June 2008 was US$ 5.4 billion. In fact, the US Consul
General, Aileen Crowe Nandi has said "India is emerging as the most favoured destination for
overseas investment and an important trading partner for the US.”
After companies like Microsoft, Intel, IBM, Hewlett-Packard, Dell, Citigroup, J.P. Morgan
and Morgan Stanley, Yahoo and Google, many other US companies are also planning to enter
the Indian market with big investments.
•The Wyndham Group of US will be partnering with Bangalore-based Royal Orchid
Hotels to open 10 Ramada hotels across the country.
•Merck & Co aims to become the largest pharmaceutical company in the Indian vaccines
market by 2013.
•After buying a 100 per cent stake in OCM Ltd for US$ 35 million, W.L. Ross & Co is
planning to invest in SpiceJet.
•Coca Cola India plans to invest US$ 250 million in India for equipment purchases, brand
promotion and marketing, over the next three years. The company has already invested
over US$ 1 billion in India.
 •The American aerospace industry will be investing in the development of infrastructure
in India's aviation, after selling aircraft and components to India.
•GE Healthcare is planning to invest US$ 200 million in India’s rural markets for
diagnostics and disease monitoring equipments such as magnetic resonance imaging
(MRI), ultrasound, computed tomography (CT scanners),and X-rays.
•Texas Chicken, the chicken fast-food brand of the US-based Church's Chicken, is
planning to enter the fast-food market in India.

Indian Investments in US

Indian investments in the US have been growing significantly since 2002, by around 75 per
cent per year. Investments in 2006 were estimated at around US$ 2 billion and rose sharply in
2007 to touch US$ 13 billion. In 2007-08 alone, an estimated US$ 10.25 billion was invested
by Indian companies in the US. Consequently, going by industry estimates, an additional
65,000 jobs were created in the US. In 2008, investments were in excess of US$ 8 billion as
on May 2008.
Investments by Indian companies in US span across diverse industrial sectors such as steel,
airlines, pharmaceuticals, auto parts, healthcare, hotels, chemicals and information
technology. Following major deals like Hindalco’s US$ 3.33 billion acquisition of Novelis,
and Tata Chemicals Limited's (TCL) acquisition of General Industrial Products for US$ 1
billion, some of the significant acquisitions of India Inc have been:
•Tata Consultancy Services (TCS) acquired the back-office operations of Citigroup for
US$ 505 million to become the second-largest BPO player globally, after IBM. Moreover,
becoming the first global bank to outsource its entire banking process, Citi has also signed
an agreement with TCS to provide process outsourcing services worth US$ 2.5 billion
over the next nine and a half years.
•The Canadian subsidiary of Essar Steel Holdings Ltd is increasing its production to 4
million tonnes (mt) by March 2009 with an investment of 170 million Canadian dollars as
capital expenditure, in an effort to entrench itself in the North American market.
•Reliance Industries USA has bought a polyester manufacturing facility in North Carolina
for about US$ 12.2 million from Unifi Kinston and plans to invest US$ 215 million in that
company.
•GMR Infrastructure has bought a 50 per cent equity stake in the US-based power utility,
InterGen, for US$ 1.1 billion.
•Ranbaxy Fine Chemicals (RFCL) has acquired the US-based speciality chemicals firm,
Mallinckrodt Baker, in a US$ 340 million deal.

What's a recession? How will US slowdown

hit India
The fear of a recession looms over the United States. And as the cliche goes, whenever the US
sneezes, the world catches a cold. This is evident from the way the Indian markets crashed
taking a cue from a probable recession in the US and a global economic slowdown.
Weakening of the American economy is bad news, not just for India, but for the rest of the
world too.

So what is a recession?
A recession is a decline in a country's gross domestic product (GDP) growth for two or more
consecutive quarters of a year. A recession is also preceded by several quarters of slowing
down.

What causes it?

An economy which grows over a period of time tends to slow down the growth as a part of
the normal economic cycle. 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 lose 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.

Stock markets & recession

The economy and the stock market are closely related. The stock markets reflect the buoyancy
of the economy. In the US, a recession is yet to be declared by the Bureau of Economic
Analysis, but investors are a worried lot. The Indian stock markets also crashed due to a
slowdown in the US economy.
The Sensex crashed by nearly 13 per cent in just two trading sessions in January. The markets
bounced back after the US Fed cut interest rates. However, stock prices are now at a low ebb
in India with little cheer coming to investors.
Analysts in India tried to make the point that the Indian economy didn't change overnight, so
there is no reason for this panic. This is true, but if the United States suffers through a
crippling recession then India will take a beating due to decreased investment in the country.
When a company is trudging through a rough patch due to a bad economy, the first thing that
they usually do is cut their research and development.

Current crisis in the US

The defaults on sub-prime mortgages (homeloan defaults) have led to a major crisis in the US.
Sub-prime is a high risk debt offered to people with poor credit worthiness or unstable
incomes. Major banks have landed in trouble after people could not pay back loans
The housing market soared on the back of easy availability of loans. The realty sector boomed
but could not sustain the momentum for long, and it collapsed under the gargantuan weight of
crippling loan defaults. Foreclosures spread like wildfire putting the US economy on shaky
ground. This, coupled with rising oil prices at $100 a barrel, slowed down the growth of the
economy.

How to fight recession

Tax cuts are the first step that a government fighting recessionary trends or a full-fledged
recession proposes to do. In the current case, the Bush government has proposed a $150-
billion bailout package in tax cuts.
The government also hikes its spending to create more jobs and boost the manufacturing and
services sectors and to prop up the economy. The government also takes steps to help the
private sector come out of the crisis.

Past recessions
The US economy has suffered 10 recessions since the end of World War II. The Great
Depression in the United was an economic slowdown, from 1930 to 1939. It was a decade of
high unemployment, low profits, low prices of goods, and high poverty.
The trade market was brought to a standstill, which consequently affected the world markets
in the 1930s. Industries that suffered the most included agriculture, mining, and logging.
In 1937, the American economy unexpectedly fell, lasting through most of 1938. Production
declined sharply, as did profits and employment. Unemployment jumped from 14.3 per cent
in 1937 to 19.0 per cent in 1938.
The US saw a recession during 1982-83 due to a tight monetary policy to control inflation and
sharp correction to overproduction of the previous decade. This was followed by Black
Monday in October 1987, when a stock market collapse saw the Dow Jones Industrial
Average plunge by 22.6 per cent affecting the lives of millions of Americans.
The early 1990s saw a collapse of junk bonds and a financial crisis.
The US saw one of its biggest recessions in 2001, ending ten years of growth, the longest
expansion on record.
From March to November 2001, employment dropped by almost 1.7 million. In the 1990-91
recession, the GDP fell 1.5 per cent from its peak in the second quarter of 1990. The 2001
recession saw a 0.6 per cent decline from the peak in the fourth quarter of 2000.
The dot-com burst hit the US economy and many developing countries as well. The economy
also suffered after the 9/11 attacks. In 2001, investors' wealth dwindled as technology stock
prices crashed.

Impact of a US recession on India

A slowdown in the US economy is bad news for India.
Indian companies have major outsourcing deals from the US. India's exports to the US have
also grown substantially over the years. The India economy is likely to lose between 1 to 2
percentage points in GDP growth in the next fiscal year. Indian companies with big tickets
deals in the US would see their profit margins shrinking.
The worries for exporters will grow as rupee strengthens further against the dollar. But experts
note that the long-term prospects for India are stable. A weak dollar could bring more foreign
money to Indian markets. Oil may get cheaper brining down inflation. A recession could bring
down oil prices to $70.
Between January 2001 and December 2002, the Dow Jones Industrial Average went down by
22.7 per cent, while the Sensex fell by 14.6 per cent. If the fall from the record highs reached
is taken, the DJIA was down 30 per cent in December 2002 from the highs it hit in January
2000. In contrast, the Sensex was down 45 per cent.
The whole of Asia would be hit by a recession as it depends on the US economy. Asia is yet to
totally decouple itself (or be independent) from the rest of the world, say experts.

A slowdown in the US economy is bad news for India.

Indian companies have major outsourcing deals from the US. India's exports to the US have
also grown substantially over the years. The India economy is likely to lose between 1 to 2
percentage points in GDP growth in the next fiscal year. Indian companies with big tickets
deals in the US would see their profit margins shrinking.
The worries for exporters will grow as rupee strengthens further against the dollar. But experts
note that the long-term prospects for India are stable. A weak dollar could bring more foreign
money to Indian markets. Oil may get cheaper brining down inflation. A recession could bring
down oil prices to $70.
Between January 2001 and December 2002, the Dow Jones Industrial Average went down by
22.7 per cent, while the Sensex fell by 14.6 per cent. If the fall from the record highs reached
is taken, the DJIA was down 30 per cent in December 2002 from the highs it hit in January
2000. In contrast, the Sensex was down 45 per cent.
The whole of Asia would be hit by a recession as it depends on the US economy. Asia is yet to
totally decouple itself (or be independent) from the rest of the world, say experts.

Stock markets & recession

The economy and the stock market are closely related. The stock markets reflect the buoyancy
of the economy. In the US, a recession is yet to be declared by the Bureau of Economic
Analysis, but investors are a worried lot. The Indian stock markets also crashed due to a
slowdown in the US economy.
The Sensex crashed by nearly 13 per cent in just two trading sessions in January. The markets
bounced back after the US Fed cut interest rates. However, stock prices are now at a low ebb
in India with little cheer coming to investors.

Majority of BPO/KPO/IT business of India is from US.besides, the majority of FIIs investing
( or playing) in Indian stock markets are USA.

A lot of Indians working in US send money back home ( India) .

For everything-like Pizza ,burger, multiplex, malls ,clothing etc we blindly follow Americans.

Any slowdown in US economy will effect them and hence will effect we Indians and our
Indian companies.

Even if the slowdown of US economy may not effect us directly, it does have psychological
impact on us.

To conclude, if one is dependant on only one person for all its needs, any effect on the 2nd
one is blound to effect the first one. Its time to get out of the USA umbrella which is leaking
now....

'Risk of a US recession high, India to be hit'

BS Reporter in Mumbai

Stephen S Roach, chairman of Morgan Stanley Asia, warned that Asia and India will be hit
hard due to a likely recession in the US in 2008, saying "if US sneezes, Asia will catch a
cold."
Predicting a significant correction in emerging market equities, which would also not spare
the fast rising Indian stock markets, Roach, who is regarded as one of the Wall Street's most
influential economists, said he did not believe in the global de-coupling theories.
"The risk of a recession in the US in 2008 is high and rising. If the US goes into recession,
you are going to feel it in Asia, you are going to feel it in India," he said.
‘We need a balanced economy to pull us through
global recession’
And from hands of U.S economy
With the ongoing economic meltdown, we are passing through a very exciting and
challenging phase. The need of the hour is to dwell on the existing capitalist and socialist
models and draw out a new model suiting the financial needs and requirements of our country.
And none other than academicians, scholars and students of economics and management can
perform this job better.
This was said by Finance Minister of Punjab, Manpreet Singh Badal we are “living through
the middle of a storm”, necessitating us to chalk out a programme for an early recovery from
the economic recession. Quoting various social and political leaders, Badal said the spirit of
discipline and nationhood, coupled with a sense of dignity needed to be rekindled for the
overall progress of the country.
While presiding over the seminar, Vice-Chancellor Jaspal Singh said that a new model based
on the principle of “socialisation of benefits, giving out enough to meet the basic needs of all
and barest minimum for the few greedy” needs to be devised. He advocated the cause of a
‘balanced economy’ rather than a mixed economy.
Home Secretary Jarnail Singh said, “When you reform the markets, you are able to increase
the growth rate but at the cost of poverty.” He suggested the implementation of strong
regulations to monitor the functioning of companies.

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