A PROJECT REPORT

ON

THE IMPACT OF GLOBAL

RECESSION ON INFORMATION
TECHNOLOGY SECTOR IN
INDIA

MASTER OF BUSINESS ADMINISTRATION

(FINANCE)
2011-2012

OF
SIKKIM MANIPAL UNIVERSITY OF HEALTH,
MEDICAL AND TECHNOLOGICAL SCIENCE
DISTANCE EDUCATION WING
SYNDICATE HOUSE MANIPAL-576 104

LEARNING CENTER
MAHOBIA CAMPUS OF INFORMATION TECHNOLOGY
VIDHYA NIKETAN 19/140, SAHDEV NAGAR
RAJNANDGAON C.G
491441

PRESENTED BY:-

Mr.SUMEET DOLHE

Introduction

Fear of a recession looms over the United

States, whenever the US sneezes, the world
catches a cold.

Indian markets crashed taking a cue from a

probable recession in the US.

Weakening of the American economy is bad

news, not just for India, but for the rest of the
world too.

What is Recession?
Recession is the economy shrinking for two
consecutive quarters (=6 months) with a
decrease in the GDP (=Gross Domestic Product)

GDP = Value of all the reported goods and services

produced by the people operating in the country

GDP = MONEY VALUE OF {C + I + G + (X M)}

C = Consumables, I = Gross Investments, G = Government Spending,
X = Exports, M = Imports

What is Recession?

GDP is a good indicator of economy; Other

indicators could be;
-Unemployment Rate
-Consumption Rate
-Actual Personal Income
-Decrease in factory production
-An Unhealthy stock market

If GDP is growing, then market is growing due to

increased demand;

What is Recession?

There is a joke that economists quote to explain the

Difference between Recession & Depression

RECESSION
= WHEN YOUR NEIGHBOR LOSES HIS JOB

DEPRESSION
= WHEN YOU LOSE YOUR JOB

What is a Business Cycle?

Whatgoes
goes up;
up; Has to
What
to come
come
down;
down;

Growing economy has to

come down if the production
rate of goods & services was more than
the actual consumption;

What causes it?

An economy grows over a period of time tends to slow down

the growth as a part of the normal economic cycle

when consumers lose confidence in the growth of the

economy and spend less.

Leads to a decreased demand for goods and services

Leads to a decrease in production, lay-offs and a sharp rise in

unemployment.

Why Recession happens?

OVER
PRODUCTION

LOW
CONFIDENCE
LEVEL

Stock markets & Recession

Stock markets reflect the buoyancy of the
economy.
Recession is yet to be declared by the Bureau of
Economic Analysis
Indian stock markets also crashed due to a
slowdown in the US economy.
Markets bounced back after the US Fed cut
interest rates

Current crisis in the US

Defaults on sub-prime mortgages have led to a
major crisis in the US.
Sub-prime is a risky debt offered to people with
poor credit or unstable incomes.
Major Banks landed in trouble after people
could not pay back loans.
Housing market soared on the back of easy
availability of loans

Current crisis in the US

Realty sector boomed but could not sustain the
momentum for long and collapsed due to loan
defaults.
Foreclosures spread like wildfire putting the US
economy on shaky ground.
coupled with rising oil prices at $100 a barrel,
slowed down the growth of the economy.

Impact of an American Recession on India

Indian companies have major outsourcing deals from
the US.
India economy is likely to lose between 1-2
percentage points in GDP growth in the next fiscal
year.
Worries for exporters will grow as rupee strengthens
further against the dollar.

Impact of an American Recession on India

Experts note that the long-term prospects for
India are stable
whole of Asia would be hit by a recession as it
depends on the US economy
In the globalised world, complete decoupling is
impossible
India may remain relatively less affected by
adverse global events.

Impact of an American Recession on India

Many small and medium companies have already
started developing trade ties with China and
European countries to ward off big losses.
IT and IT-enabled services, textiles, jewellery,
handicrafts and leather segments will suffer
losses because of their trade link.

Impact of an Global Recession on India

IT sector will be the worst hit as 75 per cent
of its revenues come from the US.
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.

Impact of an Global Recession on India

The following graph shows the changing

trend over the Years in all the major sectors
which contributes the overall development
of the Indian Economy

Impact of an Global Recession on India

30
25
20
15
2007
10

2008
2009Proj

In

O IT
ve
ra
ll

fr
as
tr

uc
tu
re
Te BFS
le I
co
m
FM
Ph CG
ar
m
a
IT
ES

Impact of an Global Recession on India

Global recession has made Indian companies

to give lay offs. The following graph shows
Layoffs in the Total Workforce of Major IT
Companies across various verticals at
different locations

Impact of an Global Recession on India

Layoff
900
800
700
600
500
400
Layoff

300
200
100

ro
W
ip

ni
Pa
t

pi
e

nt

S
Sa

TC

icr
os
of
t

IB
M

Mental Meltdown
Shrinking jobs and Pay cuts owing to recession
have taken heavy toll on mental health of Indias
high-profile work force
Dr. Jitendra Nagpal, physiatrist says the majority
of those people are 25-30 age group
symptoms are loss of appetite, irritability, long
spells of silence, lack of communication with
family and friends and absenteeism

Mental Meltdown
Although no empirical data are available on how
many people affected from recession and
suffering from work-related stress.
But increase in number of cases is a matter of
concern for both organizations and families.
Nagpal says this is due to unable to face realities
of failure, which develops a fear for work, he
believes this is mainly due to the lay off and fear
of losing the job.

Hard challenges IT-BPO services

Confidence levels appear to be at an all
time low in IT industry
2001-03 slowdowns in the US economy saw
the world embrace the off shoring of IT and
BPO services like never before.
Current recession threatens to reverse much
of that, with protectionism gaining ground in
the US.

Hard challenges IT-BPO services

Level Wise Average Salary Increase over

the period of years in Indian IT companies
and the projection now in the year 2009

io
r

Ex
ec
ut
iv

M
e
an
M
ag
Ju
id
em
ni
dl
or
e
en
M
M
t
an
an
ag
ag
er
em
/S
en
up
t
er
vi s
or
/P
...

Se
n

To
p

Hard challenges IT-BPO services

18
16
14
12
10
8
6
4
2
0
2007

2008

2009 Proj

Out of America
Old bugbear, protectionist legislation, has come
back to haunt the industry
Now $52 billion Indian IT services juggernaut is
worried.
US Senate voted to restrict the hiring of foreign
workers (H-1B visa holders) by banks that are
receiving government bailouts under the
Troubled Assets Relief Program (TARP).

Out of America
The recession has forced the US to become
protectionist
"Most Fortune 100 companies have a large
portion of their business outside the US.
This will restrict them to do most of the
company to outsource and this will create lot
of job opportunities for Americans.

Bad protection
Protectionism will be bad for both the US and
India
The Smoot-Hawley Tariff Act of 1930 is an
example of how a recession deepen to a
depression.
Economists now believe that the Great
Depression was deepened as a result of this
legislation.
Again a similar situation could arise now.

Counter strategy
There is already a shift in business strategies of
corporate India
Large IT and BPO firms have started looking at
other markets like Europe, and even the domestic
market.
Indian companies will have to adopt a multipronged strategy
In case of a full US recession, the onsite staffing
business will see a decline in sales and profit.

Counter strategy
Recessions at this juncture may not last for more
than two to three years
Smart companies will continue investments to
take advantage when recession ends.
India will have to spend a lot more to develop
market and supply chain links in alternate
markets like Asia and Europe.
Experts say the export dependent sectors need to
re-focus on local demand and income from nondollar economies.

Can India be a market option?

IT firms can definitely find a market in India
India has a huge, small and medium enterprise
base and it is the right time to tap this segment.
As for automotive components, consumer
electronics and mobile devices, they have already
found a market in India
They have also started looking at tie-ups in China
and other BRIC countries.

Consequences of Global recession on India job

market
Worst affected because of Global recession will
be service industry of India
Service industry contributes about 52% to India's
GDP growth.
People may say that there is going to be a huge
job loss due to recession
There is no threat to the skilled people
NASSCOM said India will have a shortage of
about 5 million skilled people in IT/ITeS

Consequences of Global recession on India job

market
India's travel, tourism and power industry is
going to grow at a better rate.
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

Consequences of Global recession on India job

market
Its time to be innovative and more effective to
increase the over all efficiency and go for systematic
cost cutting to balance the rupee effect.
In West Africa goods at departmental stores are sold
at the rate 5 times than Indian price and Indian
goods
Its an excellent opportunity for our exporters.

Conclusion
The overall impact of a Global slowdown on
India would be minimal
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

Conclusion
Corporate India is also learning to master
the art of efficient capital management and
delivery of value-added services to sustain
profit margins.
Interest rates are expected to be stable
primarily due to control over inflation and
proactive measures undertaken by the RBI.

Conclusion
The electoral mandate may force a course
correction.
The intervening period of more than three
months can be one in which the economy
and mass livelihoods suffer damage that can
take too long to repair.

Conclusion
HOPING THIS TIME RECESSION
VANISHES SOON SO THAT INDIA
GETS BACK TO ITS STRONGER GDP
GROWTH RATE OF 8% TO 10%
(THOUGH THE EXPERSTS SAY IT
WILL LAST TILL Q3 OF 2009)

THANK YOU