INTRODUCTION

WHAT IS RECESSION ? In economics, the term recession generally describes the reduction of a country's gross domestic product (GDP) for at least two quarters. The usual dictionary definition is "a period of reduced economic activity", a business cycle contraction. The United States-based National Bureau of Economic Research (NBER) defines economic recession as: "a significant decline in the economic activity spread across the economy, lasting more than a few months, normally visible in real GDP growth, real personal income, employment (non-farm payrolls), industrial production, and wholesale-retail sales." As a part of a normal business lifecycle when an economy that grows over a period of time tends to slow down. An economy typically grows for 6 to 10 years and later is likely to go into a recession for about 6 months to 2 years. Thus, economic recession is a declining phase of the business life cycle when there decline in economic activities spread across the economy, lasting for more than a couple of months, normally visible in GDP, employment, real income, industrial production and wholesale or retail sales. A recession has many characteristics that can occur simultaneously and can include declines in real-time measures of overall economic activities. Recessions are the result of reduction in the demand and may also be associated with falling prices also known as deflation, or on the other hand it could also be due to increasing prices also known as inflation or a combination of increasing prices and stagnant economic growth.

A prolonged or severe recession is referred to as an economic depression Although the difference between a recession and a depression is not clearly stated, it is often believed that a decline in Gross Domestic Product or GDP of more than 10% constitutes a depression. Most experts agree that it is only an "official economic recession" when GDP growth is negative for two consecutive quarters or more. For all practical purposes though, a recession starts when there are several quarters of slowing but still positive growth. The first quarter of negative growth in a recession cycle is often followed by positive growth for several quarters, and then another quarter of negative growth. It is actually quite natural for countries to experience mild economic recessions. This is a built-in factor of a society economic cycle as spending and consumption are going to increase and decrease along with prices. Rarely, experiencing many of these factors simultaneously can evoke deep economic recession or depression. US markets have a great impact on the global economic growth. Therefore when there is a cue of probable recession in the US it apparently affects the Indian market as well as the global markets leading to a global economic slowdown. Thus weakening of the US economy is bad news, not only for India, but also for the rest of the world. First, there is no standard operating definition of attrition in the industry. Average annualized attrition rate may be the most common one but companies adopt different measures (monthly attrition rates projected for a conveniently defined year, 3 months or 6 months rolling average etc) that suit different contexts. Moreover, some companies, while declaring attrition numbers, conveniently include or exclude sections of population (for example, management trainees,

employees under probation) and classify attrite people under buckets like voluntary-involuntary/regrettable-no regrettable and combinations thereof. Secondly, NASSCOM projects a 24-27% growth in IT revenue in 2007-08 over USD 39.6 Billion in FY 2006-07. The current employment for IT & ITES industry is 7.5 million and is expected to cross 10 Million by 2010. This indicates that the problem is not a temporary one but is going to last for some next few years. Thirdly, the cost of talent acquisition in booming IT market is higher than cost of retention for the same skill level. Thus any attrition typically increases cost of delivery and often dampens productivity too. The impact however, varies across skills, experiences of talents.

The best thing about the global economic recession is that the world of work culture is changing. With layoffs and salary cuts compelling employees to be more enterprising, companies too are opting for other ways of getting work done like freelance jobs, part time jobs and pay-on-working-hours, etc. to tame recession.

SIGNIFICATION OF THE STUDY

A RECESSION IS CHARACTERISED BY:

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.

Figure no. 1

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.

REVIEW OF EXISTING LITERATURE

ECONOMIC RECESSION AND THE RELATIONSHIP WITH WAR :

Even though various governments have infused around $10 trillion by way of bailout packages and lowered interest rates to near zero levels, the world economy has failed to emerge from the clutches of recession. In fact, the situation is turning worse. History shows that war always follows slowdown or recession. And given the somber geo-political situation across the globe, some economists and analysts feels that the world may well be headed in this direction. After the 1797's economic deflation, there was war between US and France from 1798 to 1800. The war between US and Great Britain in 1812 followed the depression in 1807-1808. The long depression of 1873-1879 paved the way for war between US and Spain and the First World War which lasted till 1918. The Second World War was followed by the Great Depression of 1929-1939. The early 1990's recession again put US on the war front against the Iraq. History shows that most of the wars have followed the economic crisis-- there are very few occasions when world faced slowdown or recession after the wars. Economy faced a recession after the First World War which lasted for 3 years from 1918-1921. In the Great Depression, Herbert Hoover--then US president--attempted to maintain labor rates at 1929 levels, causing massive unemployment. The economy stagnated, with labor rates failing to adjust to levels where production could be refurbished.

Over the past twelve months a great deal of attention has been paid to the prospect that a recession may be on the horizon. Concerns about recession have been on the front burner in a number of countries around the world, including in the United States. According to experts in the field, including highly qualified economists, when it comes to US economic recession history there have been 32 specific cycles of expansion and contraction since 1854 in the country. Thus, in considering the example of the US economic recession history, it can be argued that there have been 32 recessions in the United States during this 150 year plus time period. Since 1980 - over the course of nearly three decades - there have been the following recessions : 1. January 1980 - July 1980 - 6 months 2. July 1981 - November 1982 - 16 months 3. July 1990 - March 1991 - 8 months 4. March 2001- November 2001 - 8 months

LIST OF RECESSION : Name Panic of 1797 Dates 17971800 Duration 3 years Causes The effects of the deflation of the Bank of England crossed the Atlantic Ocean to North America and disrupted commercial and real estate markets in the United States and the Caribbean. Britain's economy was greatly affected by developing deflationary Repercussions. devastated shipping-related industries. The Federalists fought the embargo and allowed smuggling to take place in New England. The first major financial crisis in the

Depression of 18071814 1807 Panic of 1819 18191824

7 years

5 years

Panic of 1837

18371843

6 years

Panic of 1857

18571860

3 years

Panic of 1873

18731879

6 years

Long depression Panic of 1893

18731896

23 years

18931896

3 years

Panic of 1907

19071908

1 year

Post world war 1 recession Great

19181921

3 years

19291939

10 years

United States featured widespread foreclosures, bank failures, unemployment, and a slump in agriculture and manufacturing. A sharp downturn in the American economy was caused by bank failures and lack of confidence in the paper currency. Speculation markets were greatly affected. Failure of the Ohio Life Insurance and Trust Company burst a European speculative bubble in United States railroads and caused a loss of confidence in American banks. Over 5,000 businesses failed within the first year of the Panic, and unemployment was accompanied by protest meetings in urban areas. Economic problems in Europe prompted the failure of the Jay Cooke & Company, the largest bank in the United States. The Coinage Act of 1873 also contributed by immediately depressing the price of silver, which hurt North American mining interests. The collapse of the Vienna Stock Exchange caused a depression that spread throughout the world. production greatly increased. Failure of the United States Reading Railroad and withdrawal of European investment led to a stock market and banking collapse. This Panic was also precipitated in part by a run on the gold supply. A run on Knickerbockers Trust Company deposits on October 22, 1907, set events in motion that would lead to a severe monetary contraction. Severe hyperinflation in Europe took place over production in North America very sharp recession and was caused by the end of wartime production, along with an influx of labor from returning troops. This in turn caused high unemployment. Stock markets crashed worldwide, and a

depression

Recession 1953

of 19531954

1 year

Recession 1957

of 19571958

1 year

Recession 1960

of 19601961

1 year

banking collapse took place in the United States. This sparked a global downturn, including a second severe recession. After a post-Korean War inflationary period, more funds were transferred into national security. The Federal Reserve changed monetary policy to be more restrictive in 1952 due to fears of further inflation. Monetary policy was tightened during the two years preceding 1957, followed by an easing of policy at the end of 1957. The budget balance resulted in a change in budget surplus of 0.8% of GDP in 1957 to a budget deficit of 0.6% of GDP in 1958, and then to 2.6% of GDP in 1959. After President Kennedy's 30 January 1961 call for increased government spending to improve the Gross National Product and to reduce unemployment, the 1960-61 recession ended in February A quadrupling of oil prices by OPEC coupled with high government spending due to the Vietnam War led to stagflation in the United States. The Iranian Revolution sharply increased the price of oil around the world in 1979, causing the 1979 energy crisis. This was caused by the new regime in power in Iran, which exported oil at inconsistent intervals and at a lower volume, forcing prices to go up. Tight monetary policy in the United States to control inflation led to another recession. The changes were made largely because of inflation that was carried over from the previous decade due to the 1973 oil crisis and the 1979 energy crisis. Industrial production and manufacturing-trade sales increased in early 1991

1973 74 stock 19731975 market crash 2 years

Early 1980s recession

19801982

2 years

Early 1990s recession

19901991

1 year

Early recession Late recession

2000s Mar-Nov 2001 2000s Dec

6 months

2007- ongoing

current

The collapse of the dot-com bubble, the September 11th attacks, and accounting scandals contributed to a relatively mild contraction in the North American economy. The collapse of the housing market led to bank collapses in the US and Europe, causing the amount of available credit to be sharply curtailed, resulting in a massive liquidity crisis. In addition, high oil prices, stock markets crashed worldwide, and a banking collapse took place in the United States and the impact of recession on India came in 2008.

Table no : 1
RECESSION IS NOT FOREVER Recessions comes and goes . Some are more severe and last longer than others. But history shows that recessions invariably end, and when they do, an economic recovery follows. The fear of a recession looms over the United States. And as the clich 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.

CONSEQUENCES OF US RECESSION ON INDIA

10

Worst affected because of US recession will be the service industry of India. Under service industries come BPO, KPO, IT etc. Service industry contributes about 52% to India's GDP growth. Now if that is going to get hurt then it will also hurt India's overall growth but very slightly. India is not going to face a major impact due to US recession. People may say that there is going to be a huge job loss due to recession. and will cite the example of TCS firing about 500 employees but these were employees who did not perform and for cost cutting one have to reduce Non performing asset and that exactly what has been done. There is no threat to the skilled people. According to NASSCOM India will have a shortage of about 5 million skilled people in IT/ITeS. So there are lots of opportunities. Apart from this India's travel, tourism and power industry is going to grow at a better rate. This is again a good sign. India has a huge population so a huge consumer base so we dont have to always depend on US for our growth. India's GDP is expected to grow at the rate of 8.5-8.9 % which is again way above the growth rate of US and only second highest in the world after China. This recession gives us opportunity to be innovative and to think out of box so that the US directly dont affect our robust growth. Due to increasing Rupee exporters are having a hard time but it has been noted that our exporters are not that efficient and in past they got the benefit of depreciating rupee. So now its time to be innovative and more effective and increase the over all efficiency and go for systematic cost cutting to balance the rupee effect. Infact there are lots of scope for improvement.

11

In West Africa goods at departmental stores are sold at the rate 5 times than Indian price and Indian goods are not exported to several countries in West Africa. Its an excellent opportunity for our exporters.

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 un employment. 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.

12

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.

IMPACT OF RECESSION ON WORLD ECONOMY

An economic recession can usually be spotted before it happens. There is a tendency to see the economic landscape changing in quarters preceding the actual onset. While the growth in GDP will still be present, it will show signs of sputtering and you will see higher levels of unemployment, decline in housing prices, decline in the stock market, and business expansion plans being put on hold. When the economy sees extended periods of economic recession, the economy can be referred to as being in an economic depression. About the only good thing about a recession is that it will cure inflation. The balancing act the Federal Reserve must pursue is to slow economic growth enough to prevent inflation without triggering a recession. Currently, it must do this without the help of fiscal policy, which is generally trying to stimulate the economy as much as possible through lowering taxes, spending on social programs and ignoring current account deficits. THE IMPACT OF RECESSION ON BUSINESSES Some economists have jokingly defined a recession like this: If your neighbor gets laid off, it's a recession. If you get laid off, it's a depression. Economists officially define a recession as two consecutive quarters of negative growth in gross domestic product (GDP). The National Bureau of Economic Research cites "a significant

13

decline in economic activity spread across the economy, lasting more than a few months" as the hallmark of a recession. Both definitions are accurate because they indicate the same economic results: a loss of jobs, a decline in real income, a slowdown in industrial production and manufacturing and a slump in consumer spending - spending that drives more than two-thirds of the U.S. economy. In the article we'll explain how the impact of these broad-spectrum slowdowns on both large and small businesses can be very damaging, and in some instances, catastrophic. Some businesses may be affected only moderately, or not at all, if the recession is mild and brief. If the recession lingers and the downturn is widespread, all big businesses - firms publicly traded on major stock exchanges - may ultimately be hurt.

IMPACT OF RECESSION ON LARGE BUSINESSES

Let's take an unnamed Fortune 1000 manufacturer as a typical big business suffering the effects of a recession. What happens to this firm will likely happen to other big businesses as the recession runs its course. As sales revenues and profits decline, the manufacturer will cut back on hiring new employees, or freeze hiring entirely. In an effort to cut costs and improve the bottom line, the manufacturer may stop buying new equipment, curtail research and development and stop new product rollouts (a factor in the growth of revenue and market share). Expenditures for marketing and advertising may also be reduced. These cost-cutting efforts will impact other businesses, both big and small, which provide the goods and services used by the big manufacturer.

14

IMPACT OF RECESSION ON SMALL BUSINESSES The impact of a recession on small businesses that have annual sales substantially less than the Fortune 1000 and that are not public companies is similar to large businesses. Without major cash reserves and large capital assets as collateral, however, and with more difficulty securing additional financing in trying economic times, smaller businesses may have a harder time surviving a recession. Bankruptcies among smaller businesses may therefore occur at a higher rate than among larger firms. The bankruptcy or dissolution of a small business that serves a community - a franchised convenience store, for example - can create hardships not only for the small business owners, but for residents of the neighborhood. In the wake of such bankruptcies or dissolutions, the entrepreneurial spirit which inspired someone to go into such a business may take a hit, discouraging, at least for a while, any risky business ventures. Too many bankruptcies may also discourage banks, venture capitalists and other lenders from making loans for startups until the economy turns around. CURRENT CRISIS IN THE US The defaults on sub-prime mortgages (home loan 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

15

the US economy on shaky ground. This, coupled with rising oil prices at $100 a barrel, slowed down the growth of the economy.

FROM US CRISIS TO GLOBAL RECESSION

While the US economy is beset with serious difficulties, there are equilibrating forces in play which suggest that this could end up as a recession but not a crisis. The US economy is facing substantial difficulties. Housing prices have dropped. An increasing number of households are defaulting on home loans. Losses on home loan portfolios are affecting financial firms who hold derivatives on home loans. Some financial firms have gone bankrupt, and there is uncertainty about who else might be bankrupt. With finance in difficulties, the monetary transmission is malfunctioning. Hence, while the US Fed has cut rates sharply, the full impact of these lowered rates on the economy is not going through. Inflationary expectations are worrisome. This is undoubtedly a difficult situation. But is it a crisis? One estimate of the size of losses on sub-prime home loans is $400 billion. This is roughly 2.85% of US GDP. In India, with roughly Rs.50 lakh crore of GDP, a comparable scenario would involve home loan losses of Rs.1,43,000 crore. If such a shock hit India, one can only imagine how bad things would be. In such difficult times, why is the US economy still rolling with the punches? Why has the US economy not collapsed in a mire of failed firms, finger-pointing by government agencies, morchas in the streets, and JPC inquiries? Understanding how this shock is being absorbed, and the equilibrating forces in play, is important in making a call on whether this is a crisis or a mere recession.

16

In the idealized world of securitization, a parcel of home loans is converted into securities, which are then sold into the broad market. The ownership of these securities is dispersed amidst international hedge funds, pension funds, etc. The originator of the home loan is largely immune to the outcome : if a default takes place, the losses are borne by the owners of the securities. Many critics of securitization have pointed out that this theory has not quite panned out as expected. However, at the same time, there is no doubting the fact that securitization has given a substantial dispersion of the $400 billion loss. For this reason, the impact of the massive loss on the US financial system is not as large as it might otherwise have been. The second equilibrating channel lies in monetary policy. Unlike many other countries which have experienced crises, the US has well functioning institutions for conducting monetary policy. The US Fed has cut rates dramatically in response to difficulties in the economy. On 14th March, the 90-day treasury rate in the US had dropped to 1.16%. The impact of lowered interest rates on the economy is not as strong as it used to be, owing to difficulties in finance. However, a certain impact is surely there. Low interest rates are helping strengthen demand, and help attract smart speculators to buy assets at fire sale prices. Difficulties in finance inflict damage on the economy when they trip up the debt financing of firms. However, US corporations are unusually under-leveraged and cash-rich. Hence, this recession-inducing channel from credit market distress to the real economy is absent. The health of US corporations today is very different from the health of Japanese firms in Japan's lost decades.

17

Low interest rates are doing their job in one critical respect: the decline of the dollar. Unlike other countries which have experienced crisis, the US has a floating exchange rate and an open capital account. The exchange rate pegging with capital controls, which has brought down so many emerging markets, is absent. When interest rates dropped, the dollar fell - exactly as it should. The weak dollar is bolstering net exports and helping the economy. These effects are large. The Q4-2005 current account deficit was 7% of GDP; this has shrunk to 4.9% of GDP in Q4-2007. In other words, over these two years, the decline in the dollar contributed roughly 2% of higher demand for goods and services produced in the US. A second remarkable feature of the decline in the dollar is the funding channel for the US through Asian central banks and governments in the middle east. For each $1 trillion of reserves held in USD assets, a 10% decline in the dollar constitutes a transfer of $100 billion to the issuer of liabilities in the US. Every Asian country should be asking whether this deal makes any sense for them, but in understanding the present situation, it's useful to note that no other country facing a crisis in the past has had such a good deal, which produces fiscal transfers in the time of need. Unlike many countries which have experienced crises, monetary policy in the US is manned by brilliant intellectuals like Ben Bernanke and Fred Mishkin. Few people in the world understand the interplay between monetary policy and financial sector difficulties as well as them. The Fed cut rates, but the monetary transmission was not quite working owing to difficulties in finance, so the rate cuts were not doing their job. Hence, the Fed has been innovating with new ways to get back into the game. These innovations include 18

changing rules on collateral, reaching out to financing non-banks, etc. These strategies are on the right track and will help. Some hedge funds and private equity funds have failed. From the viewpoint of public policy, this reiterates the case for having hedge funds and private equity funds as major players, since these failures have no repercussions. The failure of Carlyle is very different from the failure of financial firms like banks or insurance companies which have assured returns obligations to the general public. It is an excellent risk management strategy for society to have hedge funds where rich people place their money, which can blow up when times go bad inflicting losses on rich people. In the failure of Bear Stearns, there was no bailout. Senior managers will be sacked, and the shareholders were expropriated. In this fashion, bit by bit, the losses on the housing market are being absorbed by various portfolios.

Conditions in the US are undoubtedly difficult. However, it is important to also understand the institutional depth of economic policy making, and the equilibrating responses which are in play. This may well be a recession, but it is not an emerging markets style 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.

19

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.

20

RECESSION 2008
Most of the worlds stock markets in late 2007 and early 2008 were touching sky. Even Indian stock market made hay while the sun shone on its horizon. Speculation was rife in many corporate headquarters that, this over exuberance and huge flow of money does not justify stock indices of several countries. There were signals of herd mentality and greed looming all over. Those signals finally came to life in early 2008. It started with IMF prediction of world growth falling to 4.0 percent from 4.9 percent. 4.0 was still a respectable prediction but that announcement was changed just after two months. USA is a dominant force in world economy and as per data it represents 21 percent of the world economy. Changing economic statistics pointed towards a possible USA recession and that signified a global downtrend in economic cycle because of domineering impact of American economy. Many countries, particularly developing ones are heavily dependent on USA and a hint of slowdown in America spelled doom for them. The average spending of American consumers reduced significantly and that resulted in reduced demand for imported items. Oil is extremely important for any country and 2008 witnessed highest ever increase in oil prices. Due to high oil prices, food prices also increased significantly. Crude oil prices rose to $ 147 per barrel from $ 80 per barrel in a span of 6-7 months. That fuelled global inflation to a dangerous mark. 2008 also witnessed unprecedented credit crisis across the world which resulted in closure of several established investment banks.

21

Things started getting worst with U.S. sub prime-mortgage market . This induced a tremendous housing market correction of huge implications for pushing up credit costs worldwide. Because of this correction, a good number of Americans, European and Asian banks had to write down billions of dollars in holdings. In fact, few banks filed for bankruptcy and that includes name like Lehman Brothers. It was biggest ever bankruptcy case in US history. More than 81 companies have filed for bankruptcy in USA. Unemployment rate also increased substantially in USA and many people had to leave job. Another 1, 57, 000 jobs were lost in September 2008. Many developed and developing countries are struggling with low GDP and decreasing economic growth. Credit crunch has spread all over the world. However, world over, policy makers are putting in extra liquidity and several other measures to stem the fall but nevertheless, we seem to be going through economic recession. Global recession has become a hot topic today. The industry has fallen to an unimaginable scale, delivering shocks to various industries. In the recent days, the value of Indian Rupee against dollar has fallen drastically to about Rs 48.5 for one dollar and is expected to touch Rs 50 in the next couple of months. According to most of the industry researchers and economists, the key reason for the increase in dollar price is mainly because of the high increase in global oil prices. This has put a great impact on the overall economy.

The increase in oil prices is flowing down to India in the form of the increases dollar value. Another key reason for the increase in dollar value is the increasing number of people investing in Indian share market, which has eventually bought the sensex to a lower scale. Nearly about a couple of months of ago, the sensex was near about a 22

mark of 17000 but today it has fallen down to about 10000. This falling down of sensex has brought a slowdown to various industries in the country including the IT, private companies, and tourist industry. Indian and multinational companies having their establishments in the country are also becoming reluctant in starting new ventures and introducing new projects.

Coming to the international market, the financial disaster has blown into full-fledged global crisis. Some of the leading world banks are also spared out the loss. Royal Bank of Scotland, HSBC, Bank of England, mortgage lender Bradford and Bingley, Morgan Stanley, Central Bank, Yamato Life Insurance, and even the Uni Credit Bank could not stem the panic. Even Lehman Brothers is highly affected by the recession 2008. Lehman Brothers, a major player in the market for sub-prime and prime mortgages, recorded a steep fall in its shares in 2007 . Lat year, somehow the company was able to manage the loss but 2008 took down all its hopes and aspirations when the company recorded a second quarter loss pf nearly 2.8 billion dollar. This situation became even worst when the in September the government took over Fannie Mae and Freddie Mac and eventually Lehman failed out. After Lehman, even Merill Lynch filed for bankruptcy and before the impact could become devastating; the company sold off its share to the Bank of America at a much lower value. On a smaller scale, a huge number of people have lost their core with the fall down of the sensex. Many have suffered loss of employment, loss of business, loss of growth opportunities, and even loss of hopes to build a future ahead.

23

As a whole the recession 2008 has blown the entire worlds economy with devastating affects and aftermaths. In economics, the term recession generally describes the reduction of a country's gross domestic product (GDP) for at least two quarters. The usual dictionary definition is "a period of reduced economic activity", a business cycle contraction.

The U.S.-based National Bureau of Economic Research (NBER) defines economic recession as: "a significant decline in the economic activity spread across the economy, lasting more than a few months, normally visible in real GDP growth, real personal income, employment (non-farm payrolls), industrial production, and wholesale-retail sales."

A recession is characterized by rising unemployment, increase in government borrowing, decrease of share and stock prices, and falling investment. All of these characteristics have effects on people In macroeconomics, a recession is a decline in a country's gross domestic product (GDP), or negative real economic growth, for two or more successive quarters of a year. An alternative, less accepted definition of recession is a downward trend in the rate of actual GDP growth as promoted by the business-cycle dating committee of the National Bureau of Economic Research. That private organization defines a recession more ambiguously as "a significant decline in economic activity spread across the economy, lasting more than a few months." A recession has many attributes that can occur simultaneously and can include declines in coincident measures of activity such

24

as employment, investment, and corporate profits. A severe or prolonged recession is referred to as an economic depression. Some recessions have been anticipated by stock market declines. In Stocks for the Long Run, Siegel mentions that since 1948, ten recessions were preceded by a stock market decline, by a lead time of 0 to 13 months (average 5.7 months). It should be noted that ten stock market declines of greater than 10% in the DJIA were not followed by a recession. The real-estate market also usually weakens before a recession. However real-estate declines can last much longer than recessions. Since the business cycle is very hard to predict, Siegel argues that it is not possible to take advantage of economic cycles for timing investments. Even the National Bureau of Economic Research (NBER) takes a few months to determine if a peak or trough has occurred in the US. During an economic decline, high yield stocks such as financial services, pharmaceuticals, and tobacco tend to hold up better. However when the economy starts to recover and the bottom of the market has passed (sometimes identified on charts as a MACD), growth stocks tend to recover faster. There is significant disagreement about how health care and utilities tend to recover. Diversifying one's portfolio into international stocks may provide some safety; however, economies that are closely correlated with that of the may also be affected by a recession in the. There is a view termed the halfway rule according to which investors start discounting an economic recovery about halfway through a recession. In the 16 U.S. recessions since 1919, the average length has been 13 months, although the recent recessions have been shorter. Thus if the 2008 recession is an average one, the downturn in the

25

stock market should bottom around November of 2008. However some economists fear that this recession may last longer. In 2008, an economic recession was suggested by several important indicators of economic downturn. These included high oil prices, which led to drastic high food prices (due to a dependence of food production on petroleum, as well as using food crop products such as ethanol and bio diesel as an alternative to petroleum) and global inflation; a substantial credit crisis leading to the drastic bankruptcy of large and well established investment banks as well as commercial banks in various, diverse nations around the world; increased unemployment; and signs of contemporaneous economic downturns in major economies of the world, a global recession. In December, the NBER declared that the world's largest economy, the United States, had been in recession since December 2007. The International Labour Organization predicted that at least 20 million jobs will have been lost by the end of 2009 due to the crisis - mostly in "construction, real estate, financial services, and the auto sector" - bringing world unemployment above 200 million for the first time. Along with a sharp rise in unemployment, a recession in 2008 would eventually result in 4.7 to 10.4 million more men, women, and children living in poverty, at least 4.2 million people losing health-insurance coverage, and a drop in the inflation-adjusted median family income of between $2,000 and $3,700 per year. The estimated effects would extend as far as 2010 or 2011, depending on the severity of the downturn. For financial markets and employers recessions are fairly short-term events, noted Schmitt. For labor markets and workers, though, recessions have historically been long and painful.

26

Most of the job losses are in the manufacturing sector, which lost 61,000 jobs this year. In the manufacturing industry, Miami Herald cited 20 percent of job loss even though the export numbers are increasing. Even though the pay or salary is increasing, a 3.6 percent increase compared to 2007 salary, it is insufficient compared to the fast rate of increase in the prices of primary commodities. The consumers buying power is still low. Food and beverage costs are 5.8 percent higher than 2007. For those who were left employed and thanking their lucky stars, there is still a hitch. Companies are already cutting the health coverage for their employees. Currently, $694 and $3,281, respectively, according to the most recent data by the Kaiser Family Foundation. For a time, major economies of the 21st century were believed to have begun a period of decreased volatility, which was sometimes dubbed The Great Moderation, because many economic variables appeared to have achieved relative stability. The return of commodity, stock market, and currency value volatility are regarded as indications that the concepts behind the Great Moderation were guided by false beliefs In the fall of 2008, this was considered a "worst-case scenario." Since then, the situation has obviously worsened radically, with financial analysts reporting a virtual freeze in worldwide investment. Equally troubling, newly industrialized countries that rely on exporting manufactured goods to richer countries for much of their national income have reported stomach-wrenching plunges in sales, producing massive plant closings and layoffs.

27

The World Bank's 2008 survey also contains troubling data about the future availability of food. Although insisting that the planet is capable of producing enough foodstuffs to meet the needs of a growing world population, its analysts were far less confident that sufficient food would be available at prices people could afford, especially once hydrocarbon prices begin to rise again. With ever more farmland being set aside for bio fuels production and efforts to increase crop yields through the use of "miracle seeds" losing steam, the Bank's analysts balanced their generally hopeful outlook with a caveat: "If bio fuels-related demand for crops is much stronger or productivity performance disappoints, future food supplies may be much more expensive than in the past."

IMPACT OF US RECESSION ON 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. The whole of Asia would be hit by a recession as it depends on the US economy. Even though domestic demand and diversification of trade in the Asian region will partly counter any drop in the US demand, one simply can't escape a downturn in the

28

world's largest economy. The US economy accounts for 30 per cent of the world's GDP. "In the globalized world, complete decoupling is impossible. But India may remain relatively less affected by adverse global events." In fact, many small and medium companies have already started developing trade ties with China and European countries to ward off big losses. Manish Sonthalia, head, equity, Motilal Oswal Securities, says if the US economy contracts much more than anticipated, the whole world's GDP growth-which is estimated at 3.7 per cent by the IMF-will contract, and India would be no exception. The only silver lining is that the recession will happen slowly, probably in six months or so. The crises in real estate, banking and credit in the United States had a global reach, affecting a wide range of financial and economic activities and institutions, including the: Overall tightening of credit with financial institutions making both corporate

and consumer credit harder to get;

Financial markets (stock exchanges and derivative markets) that experienced

steep declines;

Liquidity problems in equity funds and hedge funds. Devaluation of the assets underpinning Insurance contracts and pension

funds leading to concerns about the ability of these instruments to meet future obligations:

29

Increased public debt public finance due to the provision of public funds to the

financial services industry and other affected industries, and the

Devaluation of some currencies (Icelandic crown, some Eastern Europe and

Latin America currencies) and increased currency volatility, The financial crisis, not the only cause among other economic imbalances, was a factor by making borrowing and equity raising harder. IT and IT-enabled services, textiles, jewellery, handicrafts and leather segments suffered losses because of their trade link. Certain sections of commodities could face sharp impact due to the volatile nature of these sectors. C.J. George, managing director, Geojit Financial Services, says profits of lots of re-export firms may be affected. Countries like China import commodities from India, do some valueaddition and then export them to the US. The IT sector will be the worst hit as 75 per cent of its revenues come from the US. Low demand for services may force most Indian Fortune 500 companies to slash their IT budgets. Zinnov Consulting, a research and offshore advisory, says that besides companies from ITeS and BPO, automotive components will be affected. During a full recession, US companies in health care, financial services and all consumer demand driven firms are likely to cut down on their spending. Among other sectors, manufacturing and financial institutions are moderately vulnerable. If the service sector takes a serious hit, India may have to revise its GDP to about 8 to 8.5 per cent or even less.

30

Figure no. 4 Lokendra Tomar, senior vice-president, Integreon, a BPO firm, says the US recession is likely to have a dual impact on the outsourcing industry. Appreciating rupee along with poor performance of US companies (law firms, investment banks and media houses) will affect the bottom line of the oursourcing industry. Small BPOs, which are operating at a net margin of 7-8 per cent, will find it difficult to survive. According to Dharmakirti Joshi, director and principal economist of CRISIL, along and severe recession will seriously affect the portfolio and fixed investment flows. Corporates will also suffer from volatility in foreign exchange rates. The export sector will have to devise new strategies to enhance productivity. On the issue Mr. Manmohan Singh suggested that A co-ordinated fiscal stimulus by the countries that are in position to do so would help to mitigate the severity and duration of the recession. 31

It would also send a strong signal to investors around the world. Resort to fiscal stimulus may be viewed as risky in some situations but if we are indeed on the brink of the worst downturn since the great depression, the risk may be worth taking. 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.

THE IMPACT OF A GLOBAL RECESSION ON ASIA

The prognosis for Asias financial sector in 2009 is relatively better compared to other emerging economies and also compared to the regions own experience in 1997-98. Even so, further GDP contractions and asset market corrections are likely as the external environment continues to deteriorate and domestic demand falters. Asian economies do have fewer mismatches in external debt, lower imbalances in the government, corporate and banking sector balance sheets than their counterparts in emerging Europe, and as a whole used less leverage. Fortunately, ample foreign exchange reserves held by most countries in the region - even before the introduction of Fed swap lines and the IMFs short-term liquidity facility - fully cover short-term debt and minimize the threat of a financial crisis. Intra-Asia swap agreements are helping provide liquidity to Asian countries with less ample reserves.

32

However, given the exposure of Asian economies to exports and to global liquidity, Asia is unlikely to lead the global economic recovery, being reliant instead on resumption of demand from the US. Even so, solid macro fundamentals and a greater capacity to take fiscal and monetary measures will help Asian emerging economies recover faster and stronger, as compared to others. Those countries able to take on more aggressive fiscal and monetary responses, will outperform - but some of the recent responses including those of China risk exacerbating, not reducing overcapacities and domestic imbalances. There are five critical areas of risk for Asias financial markets in the coming months: 1. ASSET MARKETS WILL WITNESS FURTHER CORRECTIONS

Equities: Corporate earnings are yet to fully reflect the slowing sales in domestic and foreign markets and financing issues faced by firms. This implies equity market valuations are less appealing than they seem. Markets heavy on exports, commodities, banking, real estate and consumer durables stocks are being most affected. Real estate: exposure is the soft spot for Asia. With financing shortages and slowing domestic demand, further correction in real estate prices is expected in 2009. Commercial real estate is only now coming under significant pressure, especially in Asias financial centers but with the retrenchment of corporations further declines are likely, having a knock-on effect on construction.

33

Currencies: Deleveraging and easing capital flows will continue to take its toll on Asian currencies even as the export contraction weighs on the external balances of many and constrains countries from allowing currencies to appreciate. The deterioration of the global economy and need for dollar liquidity in Asia and globally will continue to support the dollar in the near-term. With both equity and property markets yet to hit a bottom, banks will face rising delinquencies and non-performing loans. 2. GOVERNMENT DEBT WILL CONTINUE TO GROW Fiscal stimulus spending and lower tax revenues are narrowing fiscal balances, pushing up government debt and financing needs. Bond issues have already been increased in the Philippines, India, Indonesia and Vietnam. While rising bond issues make yields attractive, investor interest in Asian bond markets might remain low in 2009 given the risk of domestic growth slowdown, credit crunch and rising bond issues in developed countries (considered a saferhaven). Credit ratings of India and Taiwan have been downgraded on growing fiscal vulnerabilities while ratings remain on watch for South Korea, Indonesia, Philippines, Thailand, Malaysia and Vietnam. Risk of sovereign default in Asia remains extremely low even in the case of Pakistan, where the IMF may step-up its rescue. In the case of Indonesia, the ADB may join in offering guarantees on bonds.

34

3. EXTERNAL DEBT WILL REMAIN A RISK Currency and maturity balance sheet mismatches among firms and banks have declined since the 1997-98 crises. However, South Korea, Indonesia and Vietnams corporate and banking sectors remain vulnerable to short-term and foreign-currency external debt. South Korea scores the lowest in the region on financial sector health. It has the highest loan-to-GDP ratio in Asia (of over of over 130%) with foreign-currency mismatches from bridge financing, and close to US$24.5 billion of foreign-currency short-term debt maturing in 2009, of which over half is held by branches of foreign banks. Currency swap lines with US, Japan and China only provide a band-aid. Asset quality is deteriorating rapidly as NPLs doubled in 2008 to 1.11% of total loans while delinquencies grew 46% y/y in December 2008, leading banks to curtail credit growth. Net interest margins (NIMs) are falling as the increase in long-term, high-rate bank funding via time deposits and bonds offset the Bank of Koreas policy rate cuts. A government-backed bank recapitalization fund may provide some relief when it begins capital injections in March. But this may be offset by Japanese fiscal year-end repatriations, which could have Japanese investors refusing to rollover the US$1.98 billion of Korean short-term foreign-currency debt due in March. Depreciating currencies pose additional risk to roll-over debt in South Korea, Indonesia and Pakistan. But swap lines with the Fed and with Asian central banks, as well as funds from multilateral agencies reduce the risk of default.

35

4. EASING EXTERNAL BALANCES Contraction in exports in Asia through most of 2009 will be far greater than during 1998 or 2001, putting pressure on trade and current account balances. Export recovery in 2010 will be slow as deleveraging in the West will occur at a sluggish and prolonged pace. In particular the slowdown in G3 demand and slowing of Chinas domestic demand will limit its ability to support Asian trade. Trade between China and East Asia has contracted more than trade with all partners. Much lower inflows or even outflows of portfolio funds (especially in South Korea, India, Indonesia), and slowing FDI (China, Vietnam, India, Indonesia), foreign bank lending (South Korea, India, China) and remittances (Philippines, China, India) will put pressure on the capital account. Large foreign exchange reserves will be sufficient for most central banks to intervene in FX markets and defend their plunging currencies. 5. STRAINS IN CREDIT ACCESS AND THE BANKING SECTOR Bank lending and foreign borrowings boosted credit to the corporate sector and household sectors in recent years, financing domestic demand and economic growth. But, banks are now facing a liquidity crunch and corporates are finding it hard to raise capital abroad even as domestic sources of capital (banks, equity markets) have dried up.

36

Private sector debt has increased in recent years especially in South Korea, Hong Kong, Taiwan, Indonesia, India and Singapore. Credit shrinkage and de-leveraging will be painful in these countries and as serious a risk to growth as the contraction in exports. Slowing growth, domestic demand and cooling labor markets raise bank nonperforming loans, delinquencies and deterioration in asset quality in most countries. While governments are stepping in to support public banks and force them to keep lending to firms and households, lending by private banks (including foreign branches) will continue to trend down. Hence, given the depth of problems in the US and global economy, fiscal and monetary policies in US and China, in spite of being aggressive are still behind the curve and will have limited impact. Without a recovery in the US and global economy there cannot be a sustainable recovery of Chinese or Asian growth. With the US recovery requiring lower consumption and trade deficit, China and other surplus countries growth will need to depend more on domestic demand and less on exports.

37

CONCEPTUALIZATION
SLOWDOWN OR RECESSION?
The world is likely headed for a deep recession says Paul Krugman 2008 Nobel Prize Laureate for Economics. But what is recession? Many mistake economic slowdown for recession. Textbooks define recession as a period of two consecutive quarters of negative economic growth as measured by a countrys GDP and is expected to last anywhere between six and 18 months. Slowdown, on the other hand, is just a slower growth in economic activities. While a slowdown is industry specific, a recession results in a wide ranging impact.

HOW DID THIS HAPPEN?

Trouble started with the sub-prime crisis in the US . Lending against homes to borrowers of doubtful quality resulted in debt defaults to collapse. The defaults led to a fall in property prices as home loans were foreclosed and the property was put on sale. This set off a chain reaction. Securities that were based on repackaged loans and held by a wide range of financial institutions lost value, triggering massive losses and finally bankruptcies. The final blow came in the form of Lehman Brothers bankruptcy. These apart, since the beginning of 2008, Dow Jones and Nasdaq have seen a 29 per cent fall in their respective values. Falling property prices and a sudden squeeze on liquidity and credit have set off fears about job losses and its subsequent impact on consumer spending in the US. For example, Pepsi, a consumer company, has in this quarter, reported a loss for its US operations, indicating a dip in consumer spending. A vicious cycle of fall in

38

sales, fall in profits and decline in economic growth, ultimately results in unemployment and lower consumer spending, the key reflector of recession.

IS IT A CRISIS OR A MERE RECESSION ?

While the US economy is beset with serious difficulties, there are equilibrating forces in play which suggest that this could end up as a recession but not a crisis. The US economy is facing substantial difficulties. Housing prices have dropped. An increasing number of households are defaulting on home loans. Losses on home loan portfolios are affecting financial firms who hold derivatives on home loans. Some financial firms have gone bankrupt, and there is uncertainty about who else might be bankrupt. With finance in difficulties, the monetary transmission is malfunctioning. Hence, while the US Fed has cut rates sharply, the full impact of these lowered rates on the economy is not going through. Inflationary expectations are worrisome. This is undoubtedly a difficult situation. But is it a crisis? One estimate of the size of losses on sub-prime home loans is $400 billion. This is roughly 2.85% of US GDP. In India, with roughly Rs.50 lakh crore of GDP, a comparable scenario would involve home loan losses of Rs.1,43,000 crore. If such a shock hit India, one can only imagine how bad things would be.

In the idealized world of securitization, a parcel of home loans is converted into securities, which are then sold into the broad market. The ownership of these securities is dispersed amidst international hedge funds, pension funds, etc. The

39

originator of the home loan is largely immune to the outcome : if a default takes place, the losses are borne by the owners of the securities. The second equilibriating channel lies in monetary policy. Unlike many other countries which have experienced crises, the US has well functioning institutions for conducting monetary policy. The US Fed has cut rates dramatically in response to difficulties in the economy. The impact of lowered interest rates on the economy is not as strong as it used to be, owing to difficulties in finance. Low interest rates are helping strengthen demand, and help attract smart speculators to buy assets at fire sale prices. Difficulties in finance inflict damage on the economy when they trip up the debt financing of firms. However, US corporations are unusually under-leveraged and cash-rich. Hence, this recession-inducing channel from credit market distress to the real economy is absent. A very remarkable feature of the decline in the dollar is the funding channel for the US through Asian central banks and governments in the middle east. For each $1 trillion of reserves held in USD assets, a 10% decline in the dollar constitutes a transfer of $100 billion to the issuer of liabilities in the US. Unlike many countries which have experienced crises, monetary policy in the US is manned by brilliant intellectuals like Ben Bernanke and Fred Mishkin. Conditions in the US are undoubtedly difficult. However, it is important to understand the institutional depth of economic policy making, and the equilibrating responses which are in play. This may well be a recession, but it is not an emerging markets style crisis.

40

FOCUS OF THE PROBLEM

Every project has the scope in order to understand the research and the parameters that are used in the study. The scope tells the purpose of the project. The project IMPACT OF CURRENT RECESSION ON INDIAN RETAIL SECTOR will be very helpful and the guide book for all the followers as well as the new researchers. The study will provide the relevant knowledge about the term RECESSION and its impact on India as well as World wide. The study will enhance the knowledge about various companies that are affected by the heat of recession and that are still going well in the era of recession. In todays scenario, it is very necessary to know about the condition of recession and find out the various effective solutions or indicators through which the country can save itself from the trap of recession. So, this study will give the various ways through which the country can be recovered from the curse of the recession. The scope of the study is to understand the RECESSION and its severe effects on the retail sector and finding out the reasons for the cause of recession and what can be the possible ways in order to remove this recession. Importance tells why the study is necessary and what benefits it will provide to the researcher. It is very essential part of the whole research because it tells that what this research has given you. Unless and until, the researcher will not know the importance of the study, he/she will not be able to do the research or study effectively.

41

So, the importance of the study is as follows: To understand the term Recession in a very well defined manner. To know the various effects of recession on Indian economy and world wide. To know the effects of recession on Indian retail sector. To understand the various causes that are affecting the Indian as well as World economy. To learn the various possible ways or guide lines in order to save from the trap of recession. To know that the recession is more real or psychological in India.

42

OBJECTIVES OF THE STUDY

Primary objective of the study is: To analyze the Recession in RBI Bank Secondary Objectives of the study are as follows: To study the concept of Recession To study the nature and attractiveness of Recession To identify the roadblocks of Recession on world economy To find the solutions to problems of Recession To analyze the effects of recession on Indian Market To analyze the effects of recession on Indian retail sector

43

LIMITATIONS OF THE STUDY

1. Study takes in to account all path activate and future is dynamic. 2. Most of the time was spent in persuading and collecting the matter. 3. Many of the experts may not have enough time to give the interviews. 4. Lack of availability of up to date data. 5. Much detail required for the report was not available easily.

44

RESEARCH METHODOLOGY
Research is common parlance refresh to a search for knowledge. One can also define research as a scientific and systematic search for pertinent information on a specific topic. In fact, research is an art of scientific investigation. The Advanced Learners dictionary of current English lay down the meaning research as a careful investigation and inquiry especially through search for new facts in any branch knowledge.

Research is an academic activity and as such the term should be used in a technical sense. According to Clifford woody research comprises defining and redefining problems, formulating hypothesis or suggested solutions; collecting, organizing and evaluating data; making deductions and reaching conclusion; and at last carefully testing the conclusion to determine whether they fit the formulating hypothesis.

The systematic approach concerning generalization and the formulation of theory is also research. As such the term Research refers to the systematic method consisting of enunciating the problem, formulating a hypothesis, collecting the facts of data, analyzing the facts and reaching certain conclusion either in the form of solution towards the concerned problem or certain in certain generalization for some theoretical formulation.

45

Research is an ORGANIZED and SYSTEMATIC way of FINDING ANSWERS to QUESTIONS. RESEARCH in general refers to a search for knowledge. It can also be defined as A scientific and systematic search for pertinent information on a specific topic. SYSTEMATIC because there is a definite set of procedures and steps which you will follow. There are certain things in the research process which are always done in order to get the most accurate results. ORGANIZED because in that there is a structure or method in going about doing research. It is a planned procedure, not a spontaneous one. It is focused and limited to a specific scope. FINDING ANSWERS is the end of all research. Whether it is the answer to a hypothesis or even a simple question, research is successful when we find answers. Sometimes the answer is no, but it is still an answer. QUESTIONS are central to research. If there is no question, then the answer is of no use. Research is focused on relevant, useful, and important questions. Without a question, research has no focus, drive, or purpose. Research can be defined as an organized inquiry designed and carried out to provide information for solving problems. According to Clifford Woody-research comprises defining and redefining problems, formulating hypothesis, or suggested solutions; collecting, organizing and evaluating data, making deductions and reaching conclusions; and at last carefully testing the conclusions to determine whether they fit the formulating hypothesis. The purpose of 46

research is gaining knowledge, which will be used for solving problems (applied research) or for satisfying ones thirst for knowledge (pure research). The goals of research may be discovering new facts, establishment of new relationship, creating of new concepts, and verification of existing concepts, finding solution to a problem or satisfying ones desire to know. Research is common parlance refresh to a search for knowledge. In fact, Research is an art of scientific investigation. Methodology is defined as1. "the analysis of the principles of methods, rules, and postulates employed by a discipline" or 2. "the development of methods, to be applied within a discipline" 3. "A particular procedure or set of procedures."

OBJECTIVE OF THE STUDY

Primary objective of the study is: To analyze the Recession in RBI Bank Secondary Objectives of the study are as follows: To study the concept of Recession To study the nature and attractiveness of Recession To identify the roadblocks of Recession on world economy To find the solutions to problems of Recession To analyze the effects of recession on Indian Market To analyze the effects of recession on Indian retail sector

47

UNIVERSE
Universe is Recession in Banking Sector.

DATA COLLECTION
The task of data collection begins after a research problem has been defined and research design/plan chalked out. While deciding about the method of data collection to be used for study, the researcher should keep in mind two types of data. 1. Primary data 2. Secondary data

1. PRIMARY DATA: These data are collected afresh & for the first time and thus happen to be original in character.

2. SECONDARY DATA: These data are already collected by someone else and which have already been passed through the statistical process. The researcher would have to decide which sort of data he would be using for his study and accordingly he will have to select one or other method of data collection.

COLLECTION OF DATA SECONDARY DATA

Secondary data means data that are already available i.e.; they refer to data, which have already been collected and analyzed by someone else. When the researcher utilizes secondary data, then he has to look into various sources from where he can obtain them. In this case he is certainly not confronted with the problems that are

48

usually associated with the collection of original data. Secondary data may either be published data or unpublished data. Usually published data are available in:

Various publications of central, state and local governments Various publications of foreign governments or of international bodies and their subsidiary organizations

Technical and trade journals Books, magazines and newspapers etc Reports and publication of various associations connected with business and industry, banks, stock exchanges etc.

Reports prepared by research scholars, universities, economists etc Public records and statistics, historical documents

Our project is based on secondary data also which we have collected from various sources Annual reports Websites Journals

In this research project, secondary data were used. Magazines, journals, annual reports, statements and periodicals were consulted to fetch the information about Venture Capital in India. Research project is also based on the information collected from various websites and e-links.

ANALYSIS PATTERN

49

The data collected through various primary and secondary sources are properly analyzed and interpreted to reach the results. For such analysis various tools will be used like Tables, Line charts, Bar charts etc.

INTRODUCTION OF THE PROJECT

CAUSES OF ECONOMIC RECESSION A recession is primarily caused by the actions taken to control the money supply in the economy. The Federal Reserve is responsible for maintaining an ideal balance between money supply, interest rates, and inflation. When The Federal Reserve loses balance in this equation, the economy is forced to correct itself. The Feds monetary policy of injecting tremendous amounts of money supply into the money market has kept interest rates lower while inflation continues to rise. Inflation refers to a general rise in the prices of goods and services over a period of time. The higher the rate of inflation, the smaller the percentage of goods and services that can be purchased with the same amount of money. Inflation can happen for reasons as varied as increased production costs, higher energy costs and national debt.

In an inflationary environment, people tend to cut out leisure spending, reduce overall spending and begin to save more. As individuals and

businesses curtail expenditures in an effort to trim costs, this causes GDP to decline. 50

Unemployment rates rise because companies lay off workers to cut costs. It is these combined factors that cause the economy to fall into a recession. These circumstances coupled with relaxed policies in lending practices making it extremely easy to borrow money can result in unsustainable economic activity and the economy coming to a near halt.

One of the most important causes of economic recession is unrestrained capitalism. We are paying our dues for years of overproduction and rampant greed. The golden age of capitalism in the seventies and eighties is now finally taking its toll on our economy.

It is also said that recession can be caused by factors that stunt short term growth in the economy, such as spiking oil prices or war. However, these are mostly short term in nature and tend to correct themselves in a quicker manner than the full blown recessions that have occurred in the past. PREDICTORS OF RECESSION : There are no completely reliable predictors. These are regarded to be possible predictors.

In the U.S. a significant stock market drop has often preceded the beginning of a recession. However about half of the declines of 10% or more since 1946 have not been followed by recessions. In about 50% of the cases a significant stock market decline came only after the recessions had already begun.

Inverted yield curve, the model developed by economist Jonathan H. Wright, uses yields on 10-year and three-month Treasury securities as well as the Fed's overnight funds rate. Another model developed by Federal Reserve Bank of

51

New York economists use only the 10-year/three-month spread. It is, however, not a definite indicator; it is sometimes followed by a recession 6 to 18 months later

RESULTS OF RECESSION :
FALLING STOCKS AND SLUMPING DIVIDENDS

As declining revenues show up on its quarterly earnings report, the manufacturer's stock price may decline. Dividends may also slump, or disappear entirely. Shareholders may become upset. They and the board of directors (B of D) may call for a new CEO and/or an entirely new senior management team. The manufacturer's advertising agency may be dumped and a new agency hired. The internal advertising and marketing departments may also face a personnel shakeup. When the manufacturer's stock falls and the dividends decline or stop, institutional investors who hold that stock may sell and reinvest the proceeds into betterperforming stocks. This will further depress the company's stock price. CREDIT IMPAIRMENT AND BANKRUPTCY

Also impacted by the recession is the accounts receivable (AR). The customers of the company that owe it money may pay slowly, late, partially or not at all. Then, with reduced revenues, the affected company will pay its own bills more slowly, late, or in smaller increments than the original credit agreement required. Late or delinquent payments will reduce the valuation of the corporation's debt, bonds and ability to obtain financing. The company's ability to service its debt (pay interest on the money

52

it has borrowed) may also be impaired, eventuating in defaults on bonds and other debt, further damaging the firm's credit rating and preventing further borrowing.

Figure no. 2 EMPLOYEES LAY-OFFS AND BENEFITS REDUCTION

The business may cut employees, and more work will have to be done by fewer people. Productivity per employee may increase, but morale may suffer as hours become longer, work becomes harder, wage increases are stopped and fear of further layoffs persists. As the recession increases in severity and length, management and labor may meet and agree to mutual concessions, both to save the company and to save jobs. The concessions may include wage reductions and reduced benefits. If the company is a manufacturer, it may be forced to close plants and discontinue poorly performing

53

brands. Automobile manufacturers, for example, have done this in previous recessions.

CUTS TO QUALITY OF GOODS AND SERVICES

Secondary aspects of the goods and services produced by the recession-impacted manufacturer may also suffer. In an attempt to further cut costs to improve its bottom line, the company may compromise the quality, and thus the desirability, of its products. This may manifest itself in a variety of ways and is a common reaction of many big businesses in a steep recession. Airlines, for example, may have lower maintenance standards. They may install more seats per plane, further cramping the already squeezed-in passenger. Routes to marginally profitable or money-losing destinations may be cut, inconveniencing customers and damaging the economies of the cancelled destinations. Giant food purveyors may offer less products, for the same price, in the same size package in which the larger amount was previously sold. Quality may also be reduced. Coffee, for example, may be cut with lesser-quality beans, compromising flavor and driving away cost-conscious consumers with little brand loyalty who have noticed the change REDUCED CONSUMER ACCESS

As firms impacted by the recession spend less money on advertising and marketing, big advertising agencies which bill millions of dollars per year will feel the squeeze. In turn, the decline in advertising expenditures will whittle away at the bottom lines of giant media companies in every division, be it print, broadcast or online. As the

54

effects of a recession ripple through the economy, consumer confidence declines, perpetuating the recession as consumer spending drops.

RESPONDING TO THE RECESSION

Strategies for moving an economy out of a recession vary depending on which economic school the policymakers follow. While Keynesian economists may advocate deficit spending by the government to spark economic growth, supply-side economists may suggest tax cuts to promote business capital investment. Laissez-faire economists may simply recommend that the government not interfere with natural market forces. Both government and business have responses to recessions. In the Philadelphia Business Journal, Strategic Business adviser Carter Schelling has discussed precautions businesses take to prepare for looming recession, likening it to fire drill. The business owners should gauge customers' ability to resist recession and redesign customer offerings accordingly. They should use lean principles, replace unhappy workers with those more motivated, eager and highly competitive. Also communicate that "Companies get better at what they do during bad times. MARKETS IN RECESSION WORLDWIDE AND INDIA TOO: The current meltdown in the world markets is shaking the globe today. Not even a single country seems to be off the hook. The high level of inflation has been a wet

55

blanket for the global markets. The roots of the world markets are nearly pulled away with the heavy downfall of the American financial giants. Amongst many countries, India too not exempted from the impact of world financial crisis. All this is leading to a temporary recess for the markets from a regular busy schedule. However, these fluctuations are not new for global market. For the decades long, markets, across the world, have been witnessing such ups and downs. But the ultimately fact is that the market growth rate is always constantly high when comparing to such downfalls. The recession in the US market and the global meltdown termed as Global recession have engulfed complete world economy 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 availability and companies following downsizing in the existing available staff and cutting down of the perks and salary corrections. Globally the financial sector sacking the existing base of employees in high numbers in US the major example being CITI Group same still followed by others in hospitality industry Jet and Kingfisher Airlines too. The cut in salary for the pilots being 90 % can any one imagine such a huge cut in salary. In the globalized market scenario, the impact of recession at one place/ indusrty/ sector perculate down to all the linked indusrty and this can be truly interpreated from the current market situation which is faced by the world since approx 2 month and still the situation is not in control inspite of various measures taken to fight back the recession in the market.The badly hit setor at present being the financial sector, and major issue being the "LIQUIDITY Crises" in the market.

56

IMPACT OF RECESSION ON RETAIL SECTOR

RETAIL MARKETING IN INDIA IS IN RECESSION The retail market in India is facing slowdown with the ongoing financial crisis happening across the world markets. Since the markets always have internally linked with each other, the impact of the crisis is generally shared among all. The following circumstances are creating unwelcome interruptions to the Indian retail industry. The industry hopes for the best alternations to overcome the acrimonious situations. Jobs decreased in Retail sector :

Figure no. 3

57

RETAIL AND COMMERCIAL SECTORS FEEL THE HEAT OF RECESSION :

The meltdown in the residential segment of real estate is known but the situation is no better in the retail and commercial space as well. Many projects across the country have been badly hit and industry analysts feel that there is a huge over supply of retail and commercial space. In fact, theres nearly 90 million sq ft of grade A commercial space that is blocked (lying unconstructed) across the top seven cities and more than 25 million sq ft of retail space that is similarly blocked. In the star category hotel segment, 3,000 rooms were expected to be opened for the market in the first six months of 2009, but only 1,000 of these will actually come up. The reasons for so much property lying unconstructed is a drop in overall demand, a severe liquidity crunch, generalized uncertainty in the market and the non-viability of many projects, deriving from the fact that some developers bought land at high prices and now are unable to sell at cheaper prices and are now stuck. There are at least 15 million sq ft of commercial real estate blocked across Mumbai and Thane district. While in NCR region more than 12 million sq ft of space has been blocked and one million sq ft each in Chennai and Kolkata markets. It is just a mis-match of demand and supply in the real estate business. Now is the time where the developers should rework the entire gambit of the business. Productivity is a key factor for any retailer to operate efficiently in a mall, in case of a leased deal.

58

RECESSION HAS DOWNED RETAIL RENTALS BY 25% Many retailers have downed their shutters or are downsizing their existing stores, the rentals are also on their way down. The rentals have gone down by 20-25% in the last three months owing to recession. The rentals on CG Road are in the range of Rs 90-100, down from Rs 120-130 three months ago. They are down by 25-30% on weekdays while it is down by 40% on weekends. The retailers are seeking a 15% reduction in common area maintenance (CAM) rates by 15%. sMalls on an average are seeing an occupancy level of about 65-70%. Reliance Retail has downsized its hyper mart format Reliance Mart in Iscon Mall on SG Highway, sources familiar with the development. Future Group has meanwhile closed down its 70,000 sq ft Big Bazaar near Shyamal Cross Roads. Subhiksha has also downed shutters of a couple of its stores in Ahmedabad and is re-structuring its business. RPG group owned Spencer's retail does not find Ahmedabad a viable business option and has decided to quit. "The closing down of Spencer's retail stores in Ahmedabad is because we did not achieve the targeted revenue. Moreover, Ahmedabad does not seem to have a potential in organised retail in the near future,"

59

While real estate developers like Alpha G Corp and Modi-Build Well Ltd. agree to correction in property rentals for retail stores in Ahmedabad, they deny any renegotiations for their projects.

India bulls has also closed two of its hypermarts in the city as it is restructuring its retail business.

Few retailers have moved out of non-performing malls due to lower conversions causing higher vacancy levels in the existing malls.

RECESSION HAS HIT RETAIL PROMOTIONS : The high spirits of retail business have been downsized in the festivals like Diwali. Though they are hesitant to reveal the exact figures, players of the retail industry from suburbs confirm that the business around festival season is down by 15-20 per cent than past years.

The global financial crisis together with liquidity crunch in Indian market has hit the retail sector. 60

Surprisingly, Food land Fresh and Spinach, the chains that primarily function on food and grocery items, have told the media that they have put their expansion plans on hold.

Vinod Bajaj, Country Head of Le Marche, the hypermarket in Mega Mall at Oshiwara whose staple portion of revenue comes from food items confirms, "Consumer spending is low as compared to previous years.

Shibu Philips, Business Head, Oberoi Malls, which began operations at Gurgaon this year says, Theres a mixed response in the market. Gold and jewellery stores are doing well, whereas sales of other things are not exactly strong.

This has led to the malls taking the concept of regular discounts, and rewards a step forward, by including promotional events to attract maximum footfalls. So, the recession has hit almost every sector and leaving very severe effects on them. That is why, there is a greater need to escape or to save from the trap of the recession, otherwise it will affect the industries very badly and the future of the industries will be totally destroyed.

61

RECESSION IN INDIA : CHALLENGES & OPPORTUNITIES The global economic recession has taken its toll on the Indian economy that has led to multi-crore loss in business and export orders, tens of thousands of job losses, especially in key sectors like the IT, automobiles, industry and export-oriented firms. It has also shaken up the investment regime, which is being restructured, with the telecom sector likely to be declared off-limits for foreign investors. Although the next two years or more are expected to user in a difficult phase for the national economy, there are silver linings still amid the dark clouds looming on the horizon. The stimulus package unveiled by the central government should boost exports, especially to the Gulf states, which are still awash in petro-dollars, even if the oil prices have plummeted from $142 to $42 within six months. Restrictions on exports of food, textiles and construction material to the Gulf have jacked up the prices there. Easing on export curbs should be welcome news to some 30 million people in that region. The scope and size of the export market to Saudi Arabia, the biggest market in the GCC, will be discussed later in this article. Before the crisis erupted, there were more than 1500 software firms in the country, while the employee base of the sector had grown to 553,000 (from 415,000 in FY 06). More than 1300 IT companies were operating in Bangalore alone. This sector has been adversely affected by the global crisis. The survey, which covered 33 countries, reveals that although the global slowdown will certainly impact the hiring plans of employers in India over the next three months, it has the second strongest hiring capacity globally, with a Net Employment Outlook of 19 percent.

62

This outlook represents a sharp decrease of 24 percentage points quarter-over-quarter and 27 percentage points year-over-year. Of the 33 countries covered by the survey, employers in Peru have been found to be the most upbeat with Net Employment Outlook of 24 per cent. As for the IT industry, Nasscom had initially projected a 21-24 per cent growth rate for the current financial year, but the software association revised it downward in the wake of the global financial meltdown. Similar was the projection of Infosys, when it lowered its dollar revenue guidance for FY09 by six percentage points. It now expects revenue to be between $4.724.81billion. There is a global scenario which is unprecedented and it will have an impact on everyone. But the IT industry has demonstrated time and again that it is resilient enough to deal with these challenges. Tata Consultancy Services (TCS) had asked about 500 employees to leave due to non-performance. Patni Computer Systems (PCS) has already laid off around 400 employees, or nearly 3% of its 14,800 workforce, on the same ground, while IBM Corp. followed suit in the case of 700 freshers. Wipro, the countrys third largest IT exporter, is considering firing 3,000 employees over performance-related issues. However, this is yet to be confirmed by the company.

63

More trouble seems to be in store for this sector. This time the news is that the relatively liberal visa regime in the US that enabled IT services companies to send employees on client work is under review following the job losses in the US. Away from IT firms, the IT-Enabled Services sector may also face the crunch, since a majority of Indian IT firms derive 75% or more of their revenues from the US. Thus, if the Fortune 500 companies slash their IT budgets, Indian firms could feel the heat. The sector should review its priority and focus on product innovation (as opposed to merely providing services). If this is done, India can emerge as a major player in the IT products category as well. As a result of putting all their eggs in one basket, developers, consultants, trainers, team leaders have all become victims of the recession facing the IT/Ites sector. Advertisements, sponsored listing and pay per post have been affected by the slowdown. For Pranav Dharma, a part-time blogger, the recession has shrunk ad contracts. Currently, processing services account for 60% of the industry, while the rest comes from core services (business analysis, financial planning etc). Last year the ratio was 70:30 and its likely to be in the 50:50 range next year.Also, the share of voice-based services has fallen from 95 % two years ago to 80% now and is expected to slide further. India will not be much affected, since it accounts for only 5% of the global voice market.

64

There are reports of significant declines in output of automobiles, commercial vehicles, steel, textiles, petrochemicals, construction, real estate, finance, retail activity and many other sectors. Exports fell by 12 percent in dollar terms in October, while core industries slowed to 3.4 % during the same month from 4.6 % a year ago. A survey of 125 companies by the commerce department in New Delhi has revealed that Indian companies lost export orders worth Rs.1,792 crores during August-October 2008 and were forced to lay off 65,000 workers. The manufacturing sector, especially the auto industry, has also sustained a severe hit. As a result, the global credit rating agency, Standard &Poors (S&P) has downgraded Tata Motors rating for the foreign market. The company witnessed a 30 % drop in sales in India compared to last year. The tyre market is facing a slump due to the global meltdown, forcing us to take the decision. The Tatas have left Singur. The textile giant, VF-Arvind, has started releasing employees, especially from the imported brands section, as there are few takers. Around 80 employees have been pink-slipped under its downsizing programme. The tourism sector has been affected, too. Hotels have already reported 20-25 % cancellation from international tourists who were booked to visit over the next one year. Airlines, including low cost carriers

65

(LCCs), may lower their fares by 10-12 % to extend the benefit of lower fuel prices to the customers and rein in the sagging demand. With hotel occupancy levels and room rates dipping by 20 % and 50 % respectively in just two weeks, the sector is clamouring for a substantial cut in luxury tax slabs. The industry also wants that the luxury tax on rooms be charged on the actual rates rather than on the printed rack rates. According to market sources, guests are paying 20-25% higher room rates because of this tax structure. The situation on the ground has since changed in the aftermath of economic recession and the current security threat. The government has already unveiled a Rs.300,000 crore package to pump prime the economy with specific measures for various sectors. This amount is to be spent on revitalizing stake holders such as exporters, housing, infrastructure and textiles. A four-percent cut in Value Added Tax has also been announced to help the corporate sector in general. Relief for exporters includes a 2% interest subvention up to March 2009 for pre- and post-shipment export credit for all exports. Additionally, a Rs.350-crore booster for schemes like Market Development Assistance (MDA) and Market Assessing Scheme has been granted to help exporters develop new markets. This will be applicable to all exporters. As a result of these measures, the Centres direct tax collection in November was Rs.10,347 crore against Rs.16,189 crore in the same month last year, a fall of 36 %. Prices of cars, two-wheelers and commercial vehicles are set to come down by around 3.5 percent due to duty cut announced by the government. Almost all the major manufacturers, including Maruti, Hyundai, M&M, Tata Motors, Ford, Skoda and TVS

66

said they would be passing on the benefits of the reduced duty to customers immediately. In the construction sector, ACC Ltd., the countrys biggest cement manufacturer, slashed prices by up to Rs.5 on account of reduction in cement prices by 4 %. The demand for appliances, consumer electronics, apparel, and other products is still huge and can be tapped by adopting appropriate pricing strategies. This should be possible thanks to the 4 % cut in excise duty and subsidy on export credit. Other measures in the offering include easy access to the credit market for exporters, textile manufacturers and farmers collectively to the tune of Rs.9,000 crore. Of the total outlay, a Rs.4,000 crore line of credit will be extended to the National Housing Bank (NHB) and a similar allocation for the Exim Bank. The remainder of the rescue package will be utilized for the relief of farmers and infrastructural projects. Besides these measures, a public-private partnership (PPP) could be launched to tap the investment potential in various sectors. Health tourism is one of them. There needs to be a shift in priority towards the Gulf states, with more focus on medical tourism combined with the pleasures of sun, sea and sand plus visits to spas and wildlife sanctuaries as part of the itinerary. These nationals are already coming to India for manpower recruitment. Air-India and other airlines operating on the Gulf sector should coordinate with the Indian diplomatic missions in the Gulf states, so that applicants going there for visa endorsement could also be handed tourist brochure in Arabic along with their

67

passports. This facility should also be available at the offices of national carriers of India and the GCC states. As recently as July this year, the IMF foresaw the world economy growing at 3.9 percent in 2009, advanced economies at 1.4 percent and developing countries at 6.7 percent. By early November (just four months later) these forecasts had been slashed down to 2.2 percent, minus 0.3 percent and 5.1 percent, respectively. The official estimates of Indias GDP growth for the first two quarters of 2008/9 stayed above 7.5 percent, with future projections indicating the same growth trajectory. According to the Executive Summary of Angel Brokings India Education Sector Report2008, Indias GDP has grown at a compounded grate (CAGR) of around 8.5 % over FY 2003-08, growing at over 8% in four of the five fiscals. GDP growth in FY 2007 accelerated and came in at an impressive 9.6%. Even for FY 2008, India logged in GDP growth of 9%, commendable by any standards. This makes it a hattrick for Indias GDP, which has now recorded in excess of 9% GDP growth in each of the last three fiscals. Yet, the report expresses dismay over Indias literacy rate of just 61%, ranking the country a disappointing 172nd. In fact, there is a huge requirement of talent in the field of hospitality, IT services, retail, financial services and aviation, to name a few. We believe India will have to significantly gear up its educational infrastructure to meet this demand.

68

But challenges still remain. If these challenges represent one side of the coin, there are opportunities gallery on the other. The stimulus package that the Centre is offering to the state governments presents an exciting opportunity to the private sector to resume exports to the Gulf states as Indian exporters are being offered credit facilities. For exporters from Hyderabad, now is the time to strike a deal in view of the incentives being offered. In this context, it is worthwhile considering the Saudi market which, unlike a major segment of the international market, still remains vibrant as it gears up for the expansion mode. Right now, the growth areas are real estate, renewable sources of energy, especially solar, and seasonal market like pilgrimage, when nearly 2.5 million pilgrims become consumers of electronic, household and food items that are available at cheap prices. On the export front, Indian businessmen might be interested to note that Alshoula Holding and Bayt Al-Mal Investment, two major Saudi investment companies, signed in October this year an agreement with Awan Real Estate Investment & Development Company to execute an ambitious $ 2 billion real estate project in Riyadh for setting up a shopping complex in the Saudi capital. Covering an area of 2.348 million square meters, the project will have 3,350 commercial shops and 1,380 housing units designed to meet the requirements of Saudi citizens. It will also have 97 palaces, while residents of these housing units will have access to recreational facilities.

69

Similarly, in the non-oil energy sector, new windows of opportunity are opening in the sun belt countries like Saudi Arabia which are among the sunniest of the lot, with temperatures shooting up to 50 degrees C during summer. In this context, Surana Ventures Ltd of Hyderabad, the citys new kid on the block in the field of solar energy, should stay tuned to new developments on the anvil. The company has begun production of solar modules in the 3 watt to 220 watt range with an installed capacity of 20 MW per annum. Set up in Hyderabad in February this year with an investment capital of around Rs.300 crores, the company is a joint venture between Surana Telecom & Power Ltd and Bhagya nagar India Ltd. That production of solar cells would begin in three-four months, now that module production has got under way. The Andhra Pradesh Industrial Infrastructure Corporation Ltd recently allotted 25 acres of land for the project within the Fab City, Hyderabad. The export-oriented facility is coming up in a SEZ-designated area and will enjoy fiscal benefits. Around 10 acres of land will be utilized initially with the remaining area allocated for future expansion. So, this is an exciting time of challenges and opportunities. Only those with a strong will, sound technological base and innovative solutions can ride out the crisis.

70

10 REASONS HOW RECESSION IS GOOD FOR THE PEOPLE Economy today causes most of headaches - not only in the US or India but all over the world. However, recession does bring good things in life. According to the research, there are 10 reasons how recession is good for the people: 1. For the people investing in precious metal, recession soars their investment value. Now they will start thinking about investing in a more stable and inflationfree investment options, which is a good move. 2. Recession push the people to work smarter the people will use more creativity juices to tackle the recession, which leads to better productivity and more breakthroughs. 3. Recession is good for their personal finance and money management. Recession will push the people to re-manage their personal finance they will count every penny spent more vigorously than ever.

71

4. The people will live a healthier and greener life they will start reducing nonessential household power consumption, walking the pavement or riding a bicycle instead of driving a car, less eating out and more home cooking, less meat eating and more vegetable eating, and many other benefits. 5. Retail businesses will usually, by nature, offering the people more discounts and perks at a longer period to attract and retain customers and visitors, which is good for them. 6. The people will live a more religious life they will think of God more and seek for spiritual guidances more. 7. Energy saving and alternative energy companies will reach record high in sales. New energy-related business will be established and gain better success rate. 8. What comes down must comes up - nothing better than a rebounding economy be sure or ready to ride the wave to reap the reward. 9. Recession will make family members think more of their family - Stronger bond and stronger will to survive the recession - definitely a good thing! 10. Recession tests and forms the peoples character and willpower. When the recession has passed, definitely they will become new and better men. Hence, Recession is affecting the countries in a very severe manner but if we saw in a other perspective then it is preparing the individuals to live the challenging life and building a strong desire in the hearts of the people specially marketers to fight with the terror of the recession.

72

DATA & INTERPREATIONS

From the above research, it is analysed that Retailers are likely to cut prices in future to create demand. Gibson Vedamani, CEO of Retailers Association of India told PTI, The present slowdown should not last more than six months. Value retail is already back on track. Retailers may reduce prices in the next few months in an effort to make people buy more. He said, As of January, they (retailers) are limiting inventories because it is critical in maintaining gross margins.

According to the findings, there is nothing much to worry about recession because, the mid-segment consumption is steady. Moreover, the steps taken by the government to curb inflation and interest rates has helped the industry. Companies in the retail sector have been working better now with the secured loans that banks have been forthcoming with.

MANY INDIAN INDUSTRY TO DO WELL DURING RECESSION

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 Ministry of Food Processing Industry (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 six

73

to seven per cent growth in 200304.The Indian food market is estimated at over US$ 182 billion and accounts for about two thirds of the total Indian retail market. Further, the retail food sector in India is likely to grow from around US$ 70 billion in 2008 to US$ 150 billion by 2025 2. HEALTH CARE India in case of health care facilities still lakes the adequate supply. In health care sector also there is huge gap 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. 3. 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 lifestyle 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). 4. 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

74

the ways to survive and stay in market. Others may join hands to fight with this situation together will call for the Marketing & consultants. In a booming market there are growth strategies and 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 Industrys 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 aproximately 25 per cent in next few years. 5. 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, further likely to grow by 22 per cent over the next five years and be worth US$ 12. 34 billion by 2012. 6. PHARMA RETAIL CONTINUES GROWING IN SPITE OF RECESSION Recession has bitten almost entire Retail Sector, but in India, Pharma Retail is a format which has been growing and is still growing. And this is quite obvious as customer can postpone their spending on everything other than pharma products. In

75

2008, it grew by 10% and this year it has started very optimisticaly with growth for January being 15% and the domestic retail market value being Rs. 2908 crore.

Top 5 Pharma Companies :

Rank 1 2 3 4 5

Pharma Companies Cipla Ranbaxy GlaxoSmithKline Piramal Healthcare Zydus Cadila

Table no : 2

22,136 new outlets are opening by the different retailers. So is it recession.. The country has so far not allowed any FDI in multi-brand retail due to strident political opposition, particularly of the Left, to the entry of multinational retail giants in India, who in their opinion, could ruin livelihood security of small traders and a large number of persons employed with traditional form of retail business.

As fears of foreign fund flows into India diminishing in the next few months are becoming real, the government has begun to seriously think in terms of revisiting its policy on FDI in the retail sector.

76

The retail market in India is facing slowdown with the ongoing financial crisis happening across the world markets. Since the markets always have internally linked with each other, the impact of the crisis is generally shared among all. The following circumstances are creating unwelcome interruptions to the Indian retail industry. The industry hopes for the best alternations to overcome the acrimonious situations.

REASON

FOR

THE

SUCCESSFUL

GROWING

OF

THE

INDUSSTRIES :
The industries like food, healthcare and pharma industries are still going well in the era of recession because these are the basic requirements of each and every individual. No one can survive in the world without these basic requirements, that is why their demand is inelastic. i.e. the demand is not changed according to the prizes.

RECESSION IS AFFECTING THE INDIAN JOB MARKET

The unemployment rate can rise to as high as 8.5 percent by the end of next year in America. Companies are reluctant to ramp up hiring until they feel certain recovery. will it really affect Indian job market?? With global downturn taking its toll on India, about 15 lakh people employed in the exporting sector will be out of jobs by March Layoffs. Although india is yet insulated from global financial crisis, but the indirect effect on indian corporate is very high........jobs are hit in big way......and ....... all sectors are effected but some sector like finance, investment banking...merchant banking....stock broking...IT sector and real estate is hit in big way

77

Indian Real estate sector in recession mode

The industry is presently facing a major resource crunch an obvious lack of qualified and skilled people from construction firms etc. Coupled with this manpower shortage is the shortage of availability of relevant statistics, which has created an ambiguity as to how much construction activity is actually taking place and one cant gauge the demand and supply trends accurately. Presently, the impact of recession in US economy has caused mammoth impact on Indian real estate market as well, as it is witnessing the recession. Till now, the real estate industry was a booming industry, which were in pace with information technology (IT) industry. The high net worth of individual investors has created a very fast pace of demand in Indian real estate sector, which has a very high impact image of investing in India. The recent changes, which happened in American market such as bankruptcy of Lehman Brother (one of the oldest financial firms of American market) and sell process of PE firm Merryl Lynch by the largest US bank, Bank of America, has created a very fast drops/recession in financial industry and created a crisis in all over US economy. Both of these firms were invested their more part of funds into real estate sector without having the proper analyzing or effect. They also have given the funds for mortgage industry of US, which is currently facing the hurdle of sub prime lending and have affected many players to bankruptcy.

78

This recession also affected the Sensex, which is bullish and brings down the net worth of the leader of Indian real estate player very low. The impact can be shown in share price of DLF, Unitech, GMR group, Reliance Group, Wipro, Satyam etc groups. The market rates in India are also dropped by 10 to 30 per cent in most of prominent as well as upcoming cities and the trend appears to be still continuing, till it recovers from the ill effects of financial crisis.

FUTURE OF RETAIL SECTOR

Shoppers are closing their wallets worried by job losses, sinking stock markets and prospects of a prolonged recession. There should be a major contraction in consumer spending that will be aggravated by banks being overcautious in lending. Banks in India are tightening their rules on the credit card limits and its issuance, resulting in less money being made available for spending. Retailers need to close stores that are in loss, those who do not, are in for difficult times. consumers spendings on items that are in deep discounts. Consumers will not spend time in stores if they do not find good deals. Look out for discounts in the range of 50-70 per cent on footwear, 40 per cent on sportswear, discounts may also be seen on branded goods. Price slashing needs to be done carefully by companies and must be done so that the consumers get the feeling that they are paying the true value for the product being bought. Luxury Goods shall also start taking a hit & their sales to drop by around 20 per cent. if we include jewellery in luxury, a fall up to 30 per cent in sales is expected. If the government can ensure inflation adjusted consumer spending going up or at

79

least being stable, there is some hope. It is about restoring confidence. Across the globe the sales have gone down, on-line sales have gone down as well. SHUBIKSHA CLOSED 90 RETAIL STORES

Recession is hitting the retail industry quite badly and Shubiksha has announced that it has closed 90 stores in the last 1 month. So, it is a dilemma that whether the recession is there actually in the market or it is more psychological. From the research, it is found that some industries are getting very much affected from the recession while some are going well in spite of recession.

80

CONCLUSION
From the analysis, it is very well concluded that some industries like Real Estate, IT, merchant banking, stock broking etc are getting very much affected due to the heat of recession. The impact of the sub prime crisis along with a slowdown in mortgages has led to a significant lowering of growth estimates. Since the United States dominates the global economy, any slowdown there would have an impact on most of the global economic variables. The overall impact of a US slowdown on India would, however, be minimal as the factors driving growth here are more local in nature. Unlike the rest of Asia, India is a strong domestic demand story, so any slowing in the US is likely to have a more muted impact on India. Strong growth in domestic consumption and significant spending on infrastructure are the two pillars of Indias growth story . India is also learning to master the art of efficient capital management, reduction in costs and delivery of value-added services to sustain profit margins. Further, interest rates are expected to be stable primarily due to control over inflation and proactive measures undertaken by the RBI.

81

Figure no. 6

82

RECESSION IS MORE SENTIMENTAL THAN REALISTIC IN INDIA

The economic slowdown is more sentimental than realistic; this is what the world's largest retailer Wal Mart HR head (India) believes. He also asked to take recession as an opportunity to flourish and to strengthen existing business. US and other western countries are worst affected by recession and India is quite far away from this crisis. However The media has glorified recession that has left deep impact on common men. Wal-Mart, the US based company where recession has hit the worst, there are no changes in companies functioning in India. They have not cancelled or postponed their plans, the thing that they are doing is going steady and slow. They believe that recession is a part of business, Business is a game of risks and there are always ups and downs. Bharati and Wal-Mart has begun a training institute in Amritsar that is Sponsored by the Punjab government. About 600 students have completed this two weeks course and most of them are absorbed by Bharti retail.

The employed and businessmen are affected by recession and they will overcome this situation by strong will and a positive attitude.

83

SPENCER'S RETAIL UNAFFECTED BY RECESSION

Spencer's Retail plans to continue its existing expansion plans stating that the global economic meltdown would not impact it significantly and has announced that it will scale up its hypermarts chain to 400 with revenue of Rs 12.5 billion by the end of this fiscal year in March 2009 The RPG group company has 32 large-format stores in 66 cities across India at present, spread over 1.5 million square feet. It claims to be on track to achieve its targets, according to a report. The retail chain has earmarked Rs 15 billion investment for the expansion over a two-year period up to March 2009. Consumer spending is likely to shift from luxury goods to essentials with a slowdown in the economic cycle impacting demand negatively. While most of the sectors across the country have been affected by recession, retail business in small cities like Rajkot have been relatively immune to it. According to a Big Bazaar official, the city is still witnessing considerable consumer spending in the recent times. Part of the Future Group, Big Bazaar announced its three-day shopping event 'Sabse Saste 3 Din' beginning from January 24, 2009. So. This is showing that there is a slowdown in the Indian economy or Retail industry, but not exactly the recession. So, it is more sentimental rather than the realistic.

84

RECOMMENDATIONS & SUGGESTIONS

In the era of recession, the marketers should adopt such approaches that can help or save the business from the trap of recession. There are some suggestions which will help to reduce or remove the bad impacts of recession. The suggestions are as follows: RBI needs to neutralize the outflow of FII money by unwinding the market stabilizing securities that it had used to sterilize the inflows when they happened. In 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 effects of economic crunch on the various industries.

85

BIBLIOGRAPHY
BOOKS: Kothari C.R Research Methodology Vishwa Prakashan, Second edition. Labonte Marc, "The Current Economic Recession", Congressional Research Service, Jan 10, 2002. Pelaez Carlos. M. Global Recession Risk: Dollar Devaluation and the World economy, July 10, 2007. Gross Daniel, Recession Literature, March 22, 2008.

WEBLIOGRAPHY http://en.wikipedia.org/wiki/Recession http://www.rediff.com/money/2008/feb/14spec.htm http://www.fibre2fashion.com/industry-article/9/877/impact-of-recession-inamerican-economy-on-india1.asp http://blogs.siliconindia.com/BinduRathore/D951fX4E57143664 http://www.merinews.com/catFull.jsp?articleID=144890 http://www.mumbaipluses.com/westsideplus/index.aspx?page=article&sectid=1 http://www.indiaretailing.com/arif-sheikh.asp http://www.business-standard.com/india/storypage.php?autono=342149

86