Major Recessionary Trends in India & USA and its aftereffects

Presented by ± Riddhisha Kalani

What Is Recession ? 
A Recession is a contraction phase of the business cycle.  National Bureau of Economic Research (NBER) is the official agency in charge of declaring that the economy is in a state of recession.  They define recession as :

³significant decline in economic activity lasting more than a few months, which is normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales´. 
For this reason, the official designation of recession may not come until after we are in a recession for six months or longer.

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lay-offs and a sharp rise in unemployment.  A recession normally takes place when consumers lose confidence in the growth of the economy and spend less. which in turn leads to a decrease in production.What Causes Recession ?  An economy typically expands for 6-10 years and tends to go into a recession for about six months to 2 years. .  This leads to a decreased demand for goods and services.  Investors spend less as they fear stocks values will fall and thus stock markets fall on negative sentiment.

US Crisis Hits India US faced major crisis because of ‡ Subprime mortgage crisis (homeloan defaults) ‡ Rising oil prices at $100 a barrel ‡ Global Inflation ‡ High unemployment rates ‡ A declining dollar value All this slowed down the growth of the economy and as the GDP growth rate fell to 2%. . recession set in.

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Oil Price Fluctuations .

Low GDP growth indicating Recession in US .

Indian companies with big tickets deals in the US are seeing their profit margins shrinking. .Impact on India A slowdown in the US economy is bad news for India because: ‡ ‡ ‡ Indian companies have major outsourcing deals from the US India's exports to the US have also grown substantially over the years.

Anatomy of the economic depression in India  Share Market ‡ More people have sold the shares in the indian share market than they bought in the recent weeks. Foreign investors have pulled out from stock markets leading to heavy losses in stocks and mutual funds Stock broking houses are laying-off people Because of such uncertainty many people have started saving money in banks rather than investing ‡ ‡ ‡ . This has added to the fall of sensex to lower points.

Bonuses. lavish parties. ‡ ‡ ‡ . leading the companies to hit the panic button. IT and Real Estate Sector ‡ The key challenges faced by the industry now are inflation and the psychological impact of the US crisis. India's IT export growth is also slowering down One of the casualties this time are real estate. perks. and many other benefits are missing as companies look to cut cost. where building projects are half-done all over the country and in this tight liquidity situation developers find it difficult to raise finances.

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. Layoffs and Unemployment ‡ ‡ ‡ Hundreds of workers have lost jobs in diamond jewellery. Companies in IT industry have stopped hiring and projected lower manpower need. textiles and leather industry. Firms attached to the capital market are laying off people and large companies are putting their future expansion plans on hold.

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Car. Industrial sector ‡ ‡ Government and other private companies are reluctant in starting new ventures and starting new projects. Projects that are halfway to completion. will run out of cash. or companies that are stuck with cash flow issues on businesses that are yet to reach break even. bike & truck sales down Steel plants are cutting production Hospitality and airlines are hit by poor demand ‡ ‡ ‡ .

. the risk may be worth taking. Manmohan Singh suggested ± ³A coordinated fiscal stimulus by countries that are in a position to do so would help to mitigate the severity and duration of the recession´ ³It would also send a strong signal to investors around the world.Zenith¶s Suggest On the issue Mr. 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(of the 1930¶s).´ he added.

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there should be correction in salary offerings rather than job cutting Public should spend wisely and save more Taxes including excise duty and custom duty should be reduced to lighten the adverse effect of economic crunch on various industries ‡ ‡ ‡ ‡ . In the IT sector.Corrective Steps to Check Recession ‡ RBI needs to neutralise the outflow of FII money by unwinding the market stabilisation securities that it had used to sterilise the inflows when they happened. This will mean drawing down the dollar reserves which is important at this hour.

Contd. Also. which includes diversification of the export markets. ‡ ‡ ‡ In real estate the builders should drop prices. the government should try and improve liquidity.. improving internal efficiencies to maintain cost competitiveness in a tight export market situation .Corrective Measures. so as to bring buyers back into the market.while CRR and SLR must be cut further Indian Companies have to adopt a multi-pronged strategy.

2 billion in the previous year ‡ ‡ ‡ .Opportunities in India due to recession ‡ ‡ US recession may be a boon for Indian offshore software companies The impact of recession is higher to small and medium sized (SMEs) enterprises whose bottom lines get squeezed due to lack of spending by consumers SMEs in the US are under severe pressure to increase profitability and business margins to survive. India is going to be a great beneficiary of this trend which will minimize the impact of the US recession on Indian industry By March 2008. India had received SME outsourcing deals worth $7 billion from the US as against $6. This will force them to outsource and even have M&A arrangements with Indian firms.

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