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.
the forthcoming recession may actually occur simultaneously with higher inflation . This should result in a lower inflation rate. Note also.
REVIEW OF EXISTING LITERATURE
ECONOMIC RECESSION AND THE RELATIONSHIP WITH WAR :
. a recession will definitely reduce demand pull inflation pressures and encourages price wars on the high street as firms seek to retain consumers. this recession is complicated because of rising oil prices.
Lower Inflation.g. the recent falls in share prices are largely because the market expects a recession soon. During the actual recession. Investment is much more volatile than economic growth. Note share prices often fall in anticipation of a recession. Even a slowdown in the growth rate (economy expanding at a slower rate) can lead to a significant fall in investment.•
Falling Share Prices. However. Therefore. But. Therefore. falling share prices don't always mean a recession. Generally a recession leads to lower profitability and lower dividends. shares are less attractive. falling share prices can occur for many other reasons. Typically a recession reduces demand and wage inflation.
Falling investment. e.a term known as stagflation. share prices often increase in anticipation of the economy recovering.
The Second World War was followed by the Great Depression of 1929-1939. History shows that war always follows slowdown or recession. In the Great Depression. The economy stagnated. Economy faced a recession after the First World War which lasted for 3 years from 1918-1921. History shows that most of the wars have followed the economic crisis-. causing massive unemployment. In fact. with labor rates failing to adjust to levels where production could be refurbished.Even though various governments have infused around $10 trillion by way of bailout packages and lowered interest rates to near zero levels. 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. some economists and analysts feels that the world may well be headed in this direction. And given the somber geo-political situation across the globe.there are very few occasions when world faced slowdown or recession after the wars. Herbert Hoover--then US president--attempted to maintain labor rates at 1929 levels. 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 early 1990's recession again put US on the war front against the Iraq. the situation is turning worse. After the 1797's economic deflation.
. the world economy has failed to emerge from the clutches of recession.
including highly qualified economists. The Federalists fought the embargo and allowed smuggling to take place in New England.July 1980 . January 1980 .over the course of nearly three decades .8 months
LIST OF RECESSION : Name Panic of 1797 Dates 1797–1800 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.16 months 3. devastated shipping-related industries. Since 1980 .November 1982 . Britain's economy was greatly affected by developing deflationary Repercussions. it can be argued that there have been 32 recessions in the United States during this 150 year plus time period. July 1981 .November 2001 . including in the United States. in considering the example of the US economic recession history. Thus.Over the past twelve months a great deal of attention has been paid to the prospect that a recession may be on the horizon.6 months 2.8 months 4. when it comes to US economic recession history there have been 32 specific cycles of expansion and contraction since 1854 in the country. According to experts in the field. July 1990 . March 2001. Concerns about recession have been on the front burner in a number of countries around the world.there have been the following recessions : 1. The first major financial crisis in the
Depression of 1807–1814 1807 Panic of 1819 1819–1824
.March 1991 .
the largest bank in the United States. unemployment. which hurt North American mining interests. 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. A run on Knickerbockers Trust Company deposits on October 22. The collapse of the Vienna Stock Exchange caused a depression that spread throughout the world. Economic problems in Europe prompted the failure of the Jay Cooke & Company. This in turn caused high unemployment.000 businesses failed within the first year of the Panic. Over 5. Speculation markets were greatly affected. and unemployment was accompanied by protest meetings in urban areas. The Coinage Act of 1873 also contributed by immediately depressing the price of silver. Failure of the United States Reading Railroad and withdrawal of European investment led to a stock market and banking collapse. A sharp downturn in the American economy was caused by bank failures and lack of confidence in the paper currency.Panic of 1837
Panic of 1857
Panic of 1873
Long depression Panic of 1893
Panic of 1907
Post world war 1 recession Great
United States featured widespread foreclosures. along with an influx of labor from returning troops. and a slump in agriculture and manufacturing. set events in motion that would lead to a severe monetary contraction. production greatly increased. Stock markets crashed worldwide. This Panic was also precipitated in part by a run on the gold supply. Severe hyperinflation in Europe took place over production in North America very sharp recession and was caused by the end of wartime production. and a
. 1907. bank failures.
including a second severe recession.6% of GDP in 1958. Monetary policy was tightened during the two years preceding 1957. followed by an easing of policy at the end of 1957. more funds were transferred into national security. The budget balance resulted in a change in budget surplus of 0. Tight monetary policy in the United States to control inflation led to another recession.depression
banking collapse took place in the United States. The Federal Reserve changed monetary policy to be more restrictive in 1952 due to fears of further inflation. 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. forcing prices to go up. After President Kennedy's 30 January 1961 call for increased government spending to improve the Gross National Product and to reduce unemployment.6% of GDP in 1959. This sparked a global downturn. This was caused by the new regime in power in Iran. and then to 2. The Iranian Revolution sharply increased the price of oil around the world in 1979. After a post-Korean War inflationary period. Industrial production and manufacturing-trade sales increased in early 1991
1973 –74 stock 1973–1975 market crash 2 years
Early 1980s recession
Early 1990s recession
. which exported oil at inconsistent intervals and at a lower volume. causing the 1979 energy crisis.8% of GDP in 1957 to a budget deficit of 0. 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.
the world catches a cold. and accounting scandals contributed to a relatively mild contraction in the North American economy. and a banking collapse took place in the United States and the impact of recession on India came in 2008. the September 11th attacks.
CONSEQUENCES OF US RECESSION ON INDIA
. 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. But history shows that recessions invariably end. causing the amount of available credit to be sharply curtailed. and when they do. high oil prices. In addition. Weakening of the American economy is bad news. not just for India. The fear of a recession looms over the United States. stock markets crashed worldwide. The collapse of the housing market led to bank collapses in the US and Europe. Some are more severe and last longer than others.Early recession Late recession
2000s Mar-Nov 2001 2000s Dec
2007. resulting in a massive liquidity crisis. but for the rest of the world too. an economic recovery follows.
Table no : 1
RECESSION IS NOT FOREVER Recessions comes and goes . And as the clich goes.ongoing
The collapse of the dot-com bubble. whenever the US sneezes.
There is no threat to the skilled people. People may say that there is going to be a huge job loss due to recession. According to NASSCOM India will have a shortage of about 5 million skilled people in IT/ITeS. India has a huge population so a huge consumer base so we don’t have to always depend on US for our growth. Service industry contributes about 52% to India's GDP 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 there are lots of opportunities. This is again a good sign. This recession gives us opportunity to be innovative and to think out of box so that the US directly don’t affect our robust growth. Now if that is going to get hurt then it will also hurt India's overall growth but very slightly.9 % which is again way above the growth rate of US and only second highest in the world after China. India is not going to face a major impact due to US recession. KPO. India's GDP is expected to grow at the rate of 8.Worst affected because of US recession will be the service industry of India. Apart from this India's travel. Under service industries come BPO.5-8. 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. 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. IT etc. Infact there are lots of scope for improvement.
. tourism and power industry is going to grow at a better rate.
The stock markets reflect the buoyancy of the economy. The Indian stock markets also crashed due to a slowdown in the US economy. In the US. Its an excellent opportunity for our exporters. A recession normally takes place when consumers lose confidence in the growth of the economy and spend less.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. Investors spend less as they fear stocks values will fall and thus stock markets fall on negative sentiment. An economy typically expands for 6-10 years and tends to go into a recession for about six months to 2 years. which in turn leads to a decrease in production.
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. but investors are a worried lot. This leads to a decreased demand for goods and services. a recession is yet to be declared by the Bureau of Economic Analysis. STOCK MARKETS & RECESSION The economy and the stock market are closely related.
. lay-offs and a sharp rise in un employment.
There is a tendency to see the economic landscape changing in quarters preceding the actual onset. and business expansion plans being put on hold. decline in housing prices. stock prices are now at a low ebb in India with little cheer coming to investors. the economy can be referred to as being in an economic depression. Currently.The Sensex crashed by nearly 13 per cent in just two trading sessions in January. it will show signs of sputtering and you will see higher levels of unemployment. About the only good thing about a recession is that it will cure inflation. When the economy sees extended periods of economic recession. it's a depression. If you get laid off. The markets bounced back after the US Fed cut interest rates. it's a recession. it must do this without the help of fiscal policy.
IMPACT OF RECESSION ON WORLD ECONOMY
An economic recession can usually be spotted before it happens. Economists officially define a recession as two consecutive quarters of negative growth in gross domestic product (GDP). While the growth in GDP will still be present. THE IMPACT OF RECESSION ON BUSINESSES Some economists have jokingly defined a recession like this: If your neighbor gets laid off. spending on social programs and ignoring current account deficits. The balancing act the Federal Reserve must pursue is to slow economic growth enough to prevent inflation without triggering a recession. decline in the stock market. However. The National Bureau of Economic Research cites "a significant
. which is generally trying to stimulate the economy as much as possible through lowering taxes.
As sales revenues and profits decline. or freeze hiring entirely. economy.decline in economic activity spread across the economy. if the recession is mild and brief. or not at all.spending that drives more than two-thirds of the U. Both definitions are accurate because they indicate the same economic results: a loss of jobs. In the article we'll explain how the impact of these broad-spectrum slowdowns on both large and small businesses can be very damaging. What happens to this firm will likely happen to other big businesses as the recession runs its course. a slowdown in industrial production and manufacturing and a slump in consumer spending . Expenditures for marketing and advertising may also be reduced. In an effort to cut costs and improve the bottom line. a decline in real income. which provide the goods and services used by the big manufacturer.
. lasting more than a few months" as the hallmark of a recession. catastrophic. the manufacturer may stop buying new equipment.may ultimately be hurt. If the recession lingers and the downturn is widespread. Some businesses may be affected only moderately. and in some instances. curtail research and development and stop new product rollouts (a factor in the growth of revenue and market share).
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.firms publicly traded on major stock exchanges . all big businesses . the manufacturer will cut back on hiring new employees.S. These cost-cutting efforts will impact other businesses. both big and small.
Foreclosures spread like wildfire putting
. venture capitalists and other lenders from making loans for startups until the economy turns around. Sub-prime is a high risk debt offered to people with poor credit worthiness or unstable incomes. for example . but for residents of the neighborhood. smaller businesses may have a harder time surviving a recession. CURRENT CRISIS IN THE US The defaults on sub-prime mortgages (home loan defaults) have led to a major crisis in the US.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. In the wake of such bankruptcies or dissolutions. The realty sector boomed but could not sustain the momentum for long. The housing market soared on the back of easy availability of loans. any risky business ventures. and with more difficulty securing additional financing in trying economic times. however. Too many bankruptcies may also discourage banks. The bankruptcy or dissolution of a small business that serves a community .can create hardships not only for the small business owners. Major banks have landed in trouble after people could not pay back loans. the entrepreneurial spirit which inspired someone to go into such a business may take a hit. Bankruptcies among smaller businesses may therefore occur at a higher rate than among larger firms. and it collapsed under the gargantuan weight of crippling loan defaults.a franchised convenience store. discouraging. at least for a while. Without major cash reserves and large capital assets as collateral.
Losses on home loan portfolios are affecting financial firms who hold derivatives on home loans. slowed down the growth of the economy.43. the full impact of these lowered rates on the economy is not going through.
. with roughly Rs. With finance in difficulties.1.
FROM US CRISIS TO GLOBAL RECESSION
While the US economy is beset with serious difficulties. In such difficult times. An increasing number of households are defaulting on home loans.85% of US GDP. a comparable scenario would involve home loan losses of Rs. Housing prices have dropped. is important in making a call on whether this is a crisis or a mere recession. This is undoubtedly a difficult situation. This is roughly 2. and the equilibrating forces in play. there are equilibrating forces in play which suggest that this could end up as a recession but not a crisis.the US economy on shaky ground. one can only imagine how bad things would be. finger-pointing by government agencies.50 lakh crore of GDP. But is it a crisis? One estimate of the size of losses on sub-prime home loans is $400 billion. morchas in the streets. and JPC inquiries? Understanding how this shock is being absorbed. Hence. while the US Fed has cut rates sharply. the monetary transmission is malfunctioning. In India. Inflationary expectations are worrisome. why is the US economy still rolling with the punches? Why has the US economy not collapsed in a mire of failed firms. If such a shock hit India. coupled with rising oil prices at $100 a barrel.000 crore. The US economy is facing substantial difficulties. This. Some financial firms have gone bankrupt. and there is uncertainty about who else might be bankrupt.
The impact of lowered interest rates on the economy is not as strong as it used to be. Difficulties in finance inflict damage on the economy when they trip up the debt financing of firms. Low interest rates are helping strengthen demand. and help attract smart speculators to buy assets at fire sale prices. the 90-day treasury rate in the US had dropped to 1. The health of US corporations today is very different from the health of Japanese firms in Japan's lost decades. However. However.
. the US has well functioning institutions for conducting monetary policy. The originator of the home loan is largely immune to the outcome : if a default takes place. The US Fed has cut rates dramatically in response to difficulties in the economy. pension funds. Hence. etc. the impact of the massive loss on the US financial system is not as large as it might otherwise have been. the losses are borne by the owners of the securities.16%. For this reason. a certain impact is surely there. Many critics of securitization have pointed out that this theory has not quite panned out as expected. which are then sold into the broad market. Unlike many other countries which have experienced crises. a parcel of home loans is converted into securities. at the same time. On 14th March. US corporations are unusually under-leveraged and cash-rich. there is no doubting the fact that securitization has given a substantial dispersion of the $400 billion loss.In the idealized world of securitization. However. owing to difficulties in finance. this recession-inducing channel from credit market distress to the real economy is absent. The second equilibrating channel lies in monetary policy. The ownership of these securities is dispersed amidst international hedge funds.
which has brought down so many emerging markets. the dollar fell . but the monetary transmission was not quite working owing to difficulties in finance. this has shrunk to 4. 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.exactly as it should.Low interest rates are doing their job in one critical respect: the decline of the dollar.9% of GDP in Q4-2007. which produces fiscal transfers in the time of need. the decline in the dollar contributed roughly 2% of higher demand for goods and services produced in the US. The weak dollar is bolstering net exports and helping the economy. In other words. it's useful to note that no other country facing a crisis in the past has had such a good deal. The Fed cut rates. The exchange rate pegging with capital controls. Unlike many countries which have experienced crises. The Q4-2005 current account deficit was 7% of GDP. is absent. When interest rates dropped. 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. the US has a floating exchange rate and an open capital account. so the rate cuts were not doing their job. 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. over these two years. These innovations include 18
. Hence. For each $1 trillion of reserves held in USD assets. but in understanding the present situation. Unlike other countries which have experienced crisis. the Fed has been innovating with new ways to get back into the game. These effects are large.
reaching out to financing non-banks. etc. 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. and the shareholders were expropriated. low profits.changing rules on collateral.
Conditions in the US are undoubtedly difficult. low prices of goods. it is important to also understand the institutional depth of economic policy making. It was a decade of high unemployment. which can blow up when times go bad inflicting losses on rich people. In this fashion. However.
. bit by bit. 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 losses on the housing market are being absorbed by various portfolios. Some hedge funds and private equity funds have failed. Senior managers will be sacked. and the equilibrating responses which are in play. It is an excellent risk management strategy for society to have hedge funds where rich people place their money. since these failures have no repercussions. this reiterates the case for having hedge funds and private equity funds as major players. In the failure of Bear Stearns. From the viewpoint of public policy. from 1930 to 1939. This may well be a recession. The Great Depression in the United was an economic slowdown. there was no bailout. and high poverty. These strategies are on the right track and will help.
7 million . From March to November 2001.3 per cent in 1937 to 19. when a stock market collapse saw the Dow Jones Industrial Average plunge by 22. lasting through most of 1938. which consequently affected the world markets in the 1930s. as did profits and employment.0 per cent in 1938. In 1937. In the 1990-91 recession. employment dropped by almost 1. the longest expansion on record. The US saw one of its biggest recessions in 2001. In 2001. mining. The 2001 recession saw a 0.The trade market was brought to a standstill.5 per cent from its peak in the second quarter of 1990. The early 1990s saw a collapse of junk bonds and a financial crisis.
. Production declined sharply.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. ending ten years of growth. and logging. investors' wealth dwindled as technology stock prices crashed.6 per cent affecting the lives of millions of Americans. The economy also suffered after the 9/11 attacks. 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. Unemployment jumped from 14. the GDP fell 1. Industries that suffered the most included agriculture. the American economy unexpectedly fell. This was followed by Black Monday in October 1987.
food prices also increased significantly. Crude oil prices rose to $ 147 per barrel from $ 80 per barrel in a span of 6-7 months. this over exuberance and huge flow of money does not justify stock indices of several countries. The average spending of American consumers reduced significantly and that resulted in reduced demand for imported items. It started with IMF prediction of world growth falling to 4.0 percent from 4. Even Indian stock market made hay while the sun shone on its horizon. Due to high oil prices. Speculation was rife in many corporate headquarters that.0 was still a respectable prediction but that announcement was changed just after two months. There were signals of herd mentality and greed looming all over.RECESSION 2008
Most of the world’s stock markets in late 2007 and early 2008 were touching sky.9 percent. Those signals finally came to life in early 2008. 2008 also witnessed unprecedented credit crisis across the world which resulted in closure of several established investment banks. 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. particularly developing ones are heavily dependent on USA and a hint of slowdown in America spelled doom for them. Oil is extremely important for any country and 2008 witnessed highest ever increase in oil prices.
. 4. That fuelled global inflation to a dangerous mark. USA is a dominant force in world economy and as per data it represents 21 percent of the world economy. Many countries.
the value of Indian Rupee against dollar has fallen drastically to about Rs 48. According to most of the industry researchers and economists. delivering shocks to various industries. sub prime-mortgage market . Credit crunch has spread all over the world. Another 1. Because of this correction. Another key reason for the increase in dollar value is the increasing number of people investing in Indian share market. we seem to be going through economic recession. 000 jobs were lost in September 2008. few banks filed for bankruptcy and that includes name like Lehman Brothers.S. European and Asian banks had to write down billions of dollars in holdings. world over. a good number of Americans.
The increase in oil prices is flowing down to India in the form of the increases dollar value. This induced a tremendous housing market correction of huge implications for pushing up credit costs worldwide. In the recent days. 57. Unemployment rate also increased substantially in USA and many people had to leave job. Many developed and developing countries are struggling with low GDP and decreasing economic growth. which has eventually bought the sensex to a lower scale. Global recession has become a hot topic today. the key reason for the increase in dollar price is mainly because of the high increase in global oil prices. More than 81 companies have filed for bankruptcy in USA. This has put a great impact on the overall economy. In fact. Nearly about a couple of months of ago.5 for one dollar and is expected to touch Rs 50 in the next couple of months. It was biggest ever bankruptcy case in US history.Things started getting worst with U. However. the sensex was near about a 22
. The industry has fallen to an unimaginable scale. policy makers are putting in extra liquidity and several other measures to stem the fall but nevertheless.
even Merill Lynch filed for bankruptcy and before the impact could become devastating. mortgage lender Bradford and Bingley. Central Bank. Even Lehman Brothers is highly affected by the recession 2008. Some of the leading world banks are also spared out the loss. This falling down of sensex has brought a slowdown to various industries in the country including the IT. Indian and multinational companies having their establishments in the country are also becoming reluctant in starting new ventures and introducing new projects. recorded a steep fall in its shares in 2007 . HSBC.
Coming to the international market. This situation became even worst when the in September the government took over Fannie Mae and Freddie Mac and eventually Lehman failed out. and even loss of hopes to build a future ahead. a major player in the market for sub-prime and prime mortgages. and tourist industry. and even the Uni Credit Bank could not stem the panic. a huge number of people have lost their core with the fall down of the sensex. On a smaller scale. the company sold off its share to the Bank of America at a much lower value.
.mark of 17000 but today it has fallen down to about 10000. Lehman Brothers. 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. Morgan Stanley. private companies. Lat year. Bank of England. the financial disaster has blown into full-fledged global crisis. Many have suffered loss of employment. After Lehman.8 billion dollar. Yamato Life Insurance. loss of growth opportunities. Royal Bank of Scotland. loss of business.
S. lasting more than a few months. the term recession generally describes the reduction of a country's gross domestic product (GDP) for at least two quarters. That private organization defines a recession more ambiguously as "a significant decline in economic activity spread across the economy. increase in government borrowing. In economics. or negative real economic growth. The usual dictionary definition is "a period of reduced economic activity". employment (non-farm payrolls). All of these characteristics have effects on people In macroeconomics.As a whole the recession 2008 has blown the entire world’s economy with devastating affects and aftermaths.-based National Bureau of Economic Research (NBER) defines economic recession as: "a significant decline in the economic activity spread across the economy. and wholesale-retail sales."
A recession is characterized by rising unemployment. a recession is a decline in a country's gross domestic product (GDP). real personal income. 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
. An alternative.
The U. and falling investment. industrial production. 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. normally visible in real GDP growth. a business cycle contraction. decrease of share and stock prices. for two or more successive quarters of a year.
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
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.”
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.
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
complete decoupling is impossible. including the: Overall tightening of credit with financial institutions making both corporate
and consumer credit harder to get. says if the US economy contracts much more than anticipated. Motilal Oswal Securities.
Financial markets (stock exchanges and derivative markets) that experienced
steep declines. and India would be no exception." In fact. The only silver lining is that the recession will happen slowly. Devaluation of the assets underpinning Insurance contracts and pension
funds leading to concerns about the ability of these instruments to meet future obligations:
. many small and medium companies have already started developing trade ties with China and European countries to ward off big losses. "In the globalized world. the whole world's GDP growth-which is estimated at 3. Manish Sonthalia. equity. banking and credit in the United States had a global reach.
Liquidity problems in equity funds and hedge funds. head. But India may remain relatively less affected by adverse global events. The crises in real estate. probably in six months or so.7 per cent by the IMF-will contract. The US economy accounts for 30 per cent of the world's GDP. affecting a wide range of financial and economic activities and institutions.world's largest economy.
financial services and all consumer demand driven firms are likely to cut down on their spending. The financial crisis. not the only cause among other economic imbalances. C. US companies in health care.
Increased public debt public finance due to the provision of public funds to the
financial services industry and other affected industries. some Eastern Europe and
Latin America currencies) and increased currency volatility. Countries like China import commodities from India. do some valueaddition and then export them to the US.J. textiles. says profits of lots of re-export firms may be affected. IT and IT-enabled services. Certain sections of commodities could face sharp impact due to the volatile nature of these sectors. says that besides companies from ITeS and BPO. automotive components will be affected. During a full recession. Low demand for services may force most Indian Fortune 500 companies to slash their IT budgets. managing director. India may have to revise its GDP to about 8 to 8. handicrafts and leather segments suffered losses because of their trade link. was a factor by making borrowing and equity raising harder. Geojit Financial Services.5 per cent or even less. jewellery. The 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. Among other sectors. a research and offshore advisory.
. Zinnov Consulting. manufacturing and financial institutions are moderately vulnerable. and the
Devaluation of some currencies (Icelandic crown. George.
investment banks and media houses) will affect the bottom line of the oursourcing industry. will find it difficult to survive. On the issue “Mr. director and principal economist of CRISIL. along and severe recession will seriously affect the portfolio and fixed investment flows. 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. Appreciating rupee along with poor performance of US companies (law firms. According to Dharmakirti Joshi. 4 Lokendra Tomar.” 31
. Integreon. The export sector will have to devise new strategies to enhance productivity. says the US recession is likely to have a dual impact on the outsourcing industry. Corporates will also suffer from volatility in foreign exchange rates. a BPO firm. which are operating at a net margin of 7-8 per cent. senior vice-president.Figure no. Small BPOs.
However. There is a general understanding recessions are bad. Intra-Asia swap agreements are helping provide liquidity to Asian countries with less ample reserves. the risk may be worth taking. 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.
. lower imbalances in the government. Even so. further GDP contractions and asset market corrections are likely as the external environment continues to deteriorate and domestic demand falters.“It would also send a strong signal to investors around the world.even before the introduction of Fed swap lines and the IMF’s short-term liquidity facility .” There is a lot of talk about recession at the moment.fully cover short-term debt and minimize the threat of a financial crisis. it is worth noting some people talk of a recession. . 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. corporate and banking sector balance sheets than their counterparts in emerging Europe. and as a whole used less leverage.
THE IMPACT OF A GLOBAL RECESSION ON ASIA
The prognosis for Asia’s financial sector in 2009 is relatively better compared to other emerging economies and also compared to the region’s own experience in 1997-98. This means a fall in Real GDP. Asian economies do have fewer mismatches in external debt.lower National income and lower National Output. Fortunately. even when growth is very low. ample foreign exchange reserves held by most countries in the region .
Commercial real estate is only now coming under significant pressure. With financing shortages and slowing domestic demand. This implies equity market valuations are less appealing than they seem. 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. further correction in real estate prices is expected in 2009. Markets heavy on exports.However. There are five critical areas of risk for Asia’s financial markets in the coming months: 1. Those countries able to take on more aggressive fiscal and monetary responses. will outperform . given the exposure of Asian economies to exports and to global liquidity. Even so. especially in Asia’s financial centers but with the retrenchment of corporations further declines are likely. not reducing overcapacities and domestic imbalances. banking. Asia is unlikely to lead the global economic recovery. commodities. being reliant instead on resumption of demand from the US. as compared to others.
. Real estate: exposure is the soft spot for Asia. real estate and consumer durables stocks are being most affected. having a knock-on effect on construction. solid macro fundamentals and a greater capacity to take fiscal and monetary measures will help Asian emerging economies recover faster and stronger.but some of the recent responses including those of China risk exacerbating.
Malaysia and Vietnam. investor interest in Asian bond markets might remain low in 2009 given the risk of domestic growth slowdown. Credit ratings of India and Taiwan have been downgraded on growing fiscal vulnerabilities while ratings remain ‘on watch’ for South Korea. India.
. Risk of sovereign default in Asia remains extremely low even in the case of Pakistan. Indonesia. Bond issues have already been increased in the Philippines. banks will face rising delinquencies and non-performing loans. where the IMF may step-up its rescue. Thailand.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. Indonesia and Vietnam. Philippines. With both equity and property markets yet to hit a bottom. GOVERNMENT DEBT WILL CONTINUE TO GROW Fiscal stimulus spending and lower tax revenues are narrowing fiscal balances. 2. 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. pushing up government debt and financing needs. the ADB may join in offering guarantees on bonds. In the case of Indonesia. While rising bond issues make yields attractive. credit crunch and rising bond issues in developed countries (considered a ’saferhaven’).
Asset quality is deteriorating rapidly as NPLs doubled in 2008 to 1. Indonesia and Pakistan. It has the highest loan-to-GDP ratio in Asia (of over of over 130%) with foreign-currency mismatches from bridge financing. leading banks to curtail credit growth. However.3. But swap lines with the Fed and with Asian central banks. Currency swap lines with US.98 billion of Korean short-term foreign-currency debt due in March. and close to US$24. high-rate bank funding via time deposits and bonds offset the Bank of Korea’s policy rate cuts. of which over half is held by branches of foreign banks. South Korea scores the lowest in the region on financial sector health.
. Net interest margins (NIMs) are falling as the increase in long-term. A government-backed bank recapitalization fund may provide some relief when it begins capital injections in March. Depreciating currencies pose additional risk to roll-over debt in South Korea. Japan and China only provide a band-aid. as well as funds from multilateral agencies reduce the risk of default. which could have Japanese investors refusing to rollover the US$1. South Korea. But this may be offset by Japanese fiscal year-end repatriations.5 billion of foreign-currency short-term debt maturing in 2009. Indonesia and Vietnam’s corporate and banking sectors remain vulnerable to short-term and foreign-currency external debt. EXTERNAL DEBT WILL REMAIN A RISK Currency and maturity balance sheet mismatches among firms and banks have declined since the 1997-98 crises.11% of total loans while delinquencies grew 46% y/y in December 2008.
But. Indonesia). equity markets) have dried up. India. In particular the slowdown in G3 demand and slowing of China’s domestic demand will limit its ability to support Asian trade. financing domestic demand and economic growth. foreign bank lending (South Korea. banks are now facing a liquidity crunch and corporates are finding it hard to raise capital abroad even as domestic sources of capital (banks. China. 5.
. and slowing FDI (China. Export recovery in 2010 will be slow as deleveraging in the West will occur at a sluggish and prolonged pace. Indonesia). EASING EXTERNAL BALANCES Contraction in exports in Asia through most of 2009 will be far greater than during 1998 or 2001. Much lower inflows or even outflows of portfolio funds (especially in South Korea. China) and remittances (Philippines. 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. Large foreign exchange reserves will be sufficient for most central banks to intervene in FX markets and defend their plunging currencies. Vietnam. Trade between China and East Asia has contracted more than trade with all partners. India. putting pressure on trade and current account balances. India) will put pressure on the capital account. India.4.
Credit shrinkage and de-leveraging will be painful in these countries and as serious a risk to growth as the contraction in exports. Indonesia. India and Singapore.Private sector debt has increased in recent years especially in South Korea. domestic demand and cooling labor markets raise bank nonperforming loans. Hong Kong.
. Hence. given the depth of problems in the US and global economy. delinquencies and deterioration in asset quality in most countries. 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. Slowing growth. fiscal and monetary policies in US and China. China and other surplus countries’ growth will need to depend more on domestic demand and less on exports. With the US recovery requiring lower consumption and trade deficit. lending by private banks (including foreign branches) will continue to trend down. While governments are stepping in to support public banks and force them to keep lending to firms and households. Taiwan.
For example. Dow Jones and Nasdaq have seen a 29 per cent fall in their respective values. The defaults led to a fall in property prices as home loans were foreclosed and the property was put on sale.CONCEPTUALIZATION
SLOWDOWN OR RECESSION?
“The world is likely headed for a deep recession” says Paul Krugman 2008 Nobel Prize Laureate for Economics. 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. Textbooks define recession as a period of two consecutive quarters of negative economic growth as measured by a country’s GDP and is expected to last anywhere between six and 18 months. This set off a chain reaction. But what is recession? Many mistake economic slowdown for recession. triggering massive losses and finally bankruptcies.
HOW DID THIS HAPPEN?
Trouble started with the sub-prime crisis in the US . a consumer company. Securities that were based on repackaged loans and held by a wide range of financial institutions lost value. indicating a dip in consumer spending. Lending against homes to borrowers of doubtful quality resulted in debt defaults to collapse. These apart. is just a slower growth in economic activities. reported a loss for its US operations. Slowdown. has in this quarter. While a slowdown is industry specific. The final blow came in the form of Lehman Brothers’ bankruptcy. a recession results in a wide ranging impact. on the other hand. since the beginning of 2008. A vicious cycle of fall in
Losses on home loan portfolios are affecting financial firms who hold derivatives on home loans. ultimately results in unemployment and lower consumer spending. This is roughly 2.1.
IS IT A CRISIS OR A MERE RECESSION ?
While the US economy is beset with serious difficulties. The ownership of these securities is dispersed amidst international hedge funds.43. while the US Fed has cut rates sharply. fall in profits and decline in economic growth. a parcel of home loans is converted into securities. Inflationary expectations are worrisome. and there is uncertainty about who else might be bankrupt. The US economy is facing substantial difficulties.
In the idealized world of securitization. With finance in difficulties.sales.50 lakh crore of GDP. But is it a crisis? One estimate of the size of losses on sub-prime home loans is $400 billion. a comparable scenario would involve home loan losses of Rs. the key reflector of recession. etc.85% of US GDP. the full impact of these lowered rates on the economy is not going through. one can only imagine how bad things would be. In India. Some financial firms have gone bankrupt. The
. there are equilibrating forces in play which suggest that this could end up as a recession but not a crisis. which are then sold into the broad market. This is undoubtedly a difficult situation. Housing prices have dropped. If such a shock hit India. An increasing number of households are defaulting on home loans.000 crore. Hence. with roughly Rs. pension funds. the monetary transmission is malfunctioning.
The US Fed has cut rates dramatically in response to difficulties in the economy. monetary policy in the US is manned by brilliant intellectuals like Ben Bernanke and Fred Mishkin. 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. Conditions in the US are undoubtedly difficult.originator of the home loan is largely immune to the outcome : if a default takes place. • The second equilibriating channel lies in monetary policy. Difficulties in finance inflict damage on the economy when they trip up the debt financing of firms. US corporations are unusually under-leveraged and cash-rich. this recession-inducing channel from credit market distress to the real economy is absent. it is important to understand the institutional depth of economic policy making. owing to difficulties in finance. Low interest rates are helping strengthen demand. Unlike many other countries which have experienced crises. the losses are borne by the owners of the securities. the US has well functioning institutions for conducting monetary policy. This may well be a recession. For each $1 trillion of reserves held in USD assets. However. but it is not an emerging markets style crisis. However. Unlike many countries which have experienced crises.
. The impact of lowered interest rates on the economy is not as strong as it used to be. a 10% decline in the dollar constitutes a transfer of $100 billion to the issuer of liabilities in the US. and help attract smart speculators to buy assets at fire sale prices. Hence. and the equilibrating responses which are in play.
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. he/she will not be able to do the research or study effectively. Unless and until. 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. 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. So. The study will provide the relevant knowledge about the term “RECESSION” and its impact on India as well as World wide.FOCUS OF THE PROBLEM
Every project has the scope in order to understand the research and the parameters that are used in the study. It is very essential part of the whole research because it tells that what this research has given you. the researcher will not know the importance of the study. The scope tells the purpose of the project. Importance tells why the study is necessary and what benefits it will provide to the researcher.
. In today’s scenario. this study will give the various ways through which the country can be recovered from the curse of the recession. 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.
• To know that the recession is more real or psychological in India. • To learn the various possible ways or guide lines in order to save from the trap of recession.
. the importance of the study is as follows: • • • • To understand the term “Recession” in a very well defined manner. To understand the various causes that are affecting the Indian as well as World economy. To know the various effects of recession on Indian economy and world wide.So. To know the effects of recession on Indian retail sector.
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
Most of the time was spent in persuading and collecting the matter. Lack of availability of up to date data. 3. 5.LIMITATIONS OF THE STUDY
. Much detail required for the report was not available easily. Study takes in to account all path activate and future is dynamic. 4. 2. Many of the experts may not have enough time to give the interviews.
research is an art of scientific investigation. collecting the facts of data. According to Clifford woody research comprises defining and redefining problems. formulating a hypothesis. making deductions and reaching conclusion. As such the term “Research” refers to the systematic method consisting of enunciating the problem. One can also define research as a scientific and systematic search for pertinent information on a specific topic. collecting. and at last carefully testing the conclusion to determine whether they fit the formulating hypothesis. organizing and evaluating data.
The systematic approach concerning generalization and the formulation of theory is also research. The Advanced Learner’s 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”. 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.” In fact. formulating hypothesis or suggested solutions.
Research is an academic activity and as such the term should be used in a technical sense.RESEARCH METHODOLOGY
“Research is common parlance refresh to a search for knowledge.
If there is no question. Whether it is the answer to a hypothesis or even a simple question. and important questions. According to Clifford Woody-“research comprises defining and redefining problems.” SYSTEMATIC because there is a definite set of procedures and steps which you will follow. formulating hypothesis. RESEARCH in general refers to a search for knowledge. then the answer is of no use. It is a planned procedure. organizing and evaluating data. and at last carefully testing the conclusions to determine whether they fit the formulating hypothesis. It can also be defined as “A scientific and systematic search for pertinent information on a specific topic. research has no focus. research is successful when we find answers. The purpose of 46
.Research is an ORGANIZED and SYSTEMATIC way of FINDING ANSWERS to QUESTIONS. not a spontaneous one. making deductions and reaching conclusions. Sometimes the answer is no. or purpose. useful. FINDING ANSWERS is the end of all research. Research can be defined as an organized inquiry designed and carried out to provide information for solving problems. but it is still an answer. drive. QUESTIONS are central to research. It is focused and limited to a specific scope. ORGANIZED because in that there is a structure or method in going about doing research. collecting. There are certain things in the research process which are always done in order to get the most accurate results. Without a question. Research is focused on relevant. or suggested solutions.
“Research is an art of scientific investigation. “ Methodology is defined as1.research is gaining knowledge. and postulates employed by a discipline" or 2. "the development of methods.” The goals of research may be discovering new facts. which will be used for solving problems (applied research) or for satisfying one’s thirst for knowledge (pure research). establishment of new relationship. to be applied within a discipline" 3. Research is common parlance refresh to a search for knowledge. "the analysis of the principles of methods. finding solution to a problem or satisfying one’s desire to know. "A particular procedure or set of procedures. In fact. creating of new concepts."
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
. rules. and verification of existing concepts.
COLLECTION OF DATA SECONDARY DATA
Secondary data means data that are already available i. they refer to data. the researcher should keep in mind two types of data.. Primary data 2. SECONDARY DATA: These data are already collected by someone else and which have already been passed through the statistical process. 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
2. PRIMARY DATA: These data are collected afresh & for the first time and thus happen to be original in character. which have already been collected and analyzed by someone else. 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.
The task of data collection begins after a research problem has been defined and research design/plan chalked out. Secondary data
Universe is Recession in Banking Sector. When the researcher utilizes secondary data. While deciding about the method of data collection to be used for study. 1.
Usually published data are available in:
Various publications of central. Research project is also based on the information collected from various websites and e-links. Magazines. universities. banks. magazines and newspapers etc Reports and publication of various associations connected with business and industry. annual reports.
. Secondary data may either be published data or unpublished data. secondary data were used.usually associated with the collection of original data. stock exchanges etc.
Reports prepared by research scholars. 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. statements and periodicals were consulted to fetch the information about Venture Capital in India. journals. state and local governments Various publications of foreign governments or of international bodies and their subsidiary organizations
• • •
Technical and trade journals Books.
. Inflation can happen for reasons as varied as increased production costs. the smaller the percentage of goods and services that can be purchased with the same amount of money. people tend to cut out leisure spending. When The Federal Reserve loses balance in this equation. As individuals and
businesses curtail expenditures in an effort to trim costs. Line charts. 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. higher energy costs and national debt. 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.The data collected through various primary and secondary sources are properly analyzed and interpreted to reach the results. the economy is forced to correct itself.
In an inflationary environment. this causes GDP to decline. interest rates. reduce overall spending and begin to save more. Inflation refers to a general rise in the prices of goods and services over a period of time. For such analysis various tools will be used like Tables. The higher the rate of inflation. and inflation.
S. Another model developed by Federal Reserve Bank of
. In about 50% of the cases a significant stock market decline came only after the recessions had already begun. These are regarded to be possible predictors. We are paying our dues for years of overproduction and rampant greed. However about half of the declines of 10% or more since 1946 have not been followed by recessions. Wright. a significant stock market drop has often preceded the beginning of a recession. PREDICTORS OF RECESSION : There are no completely reliable predictors. the model developed by economist Jonathan H. It is these combined factors that cause the economy to fall into a recession. such as spiking oil prices or war. 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.
In the U. However.•
Unemployment rates rise because companies lay off workers to cut costs.
Inverted yield curve. 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. The golden age of capitalism in the seventies and eighties is now finally taking its toll on our economy.
One of the most important causes of economic recession is unrestrained capitalism.
It is also said that recession can be caused by factors that stunt short term growth in the economy. uses yields on 10-year and three-month Treasury securities as well as the Fed's overnight funds rate.
When the manufacturer's stock falls and the dividends decline or stop. The internal advertising and marketing departments may also face a personnel shakeup. or in smaller increments than the original credit agreement required. • 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. They and the board of directors (B of D) may call for a new CEO and/or an entirely new senior management team. the affected company will pay its own bills more slowly. Then. bonds and ability to obtain financing. partially or not at all. Late or delinquent payments will reduce the valuation of the corporation's debt.New York economists use only the 10-year/three-month spread. late. 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. not a definite indicator. with reduced revenues. the manufacturer's stock price may decline. The manufacturer's advertising agency may be dumped and a new agency hired. however. or disappear entirely. Dividends may also slump. The company's ability to service its debt (pay interest on the money
. late. Shareholders may become upset. institutional investors who hold that stock may sell and reinvest the proceeds into betterperforming stocks. This will further depress the company's stock price. It is.
and more work will have to be done by fewer people. further damaging the firm's credit rating and preventing further borrowing. 2 • EMPLOYEES LAY-OFFS AND BENEFITS REDUCTION
The business may cut employees. If the company is a manufacturer. it may be forced to close plants and discontinue poorly performing
. Productivity per employee may increase. both to save the company and to save jobs.it has borrowed) may also be impaired. management and labor may meet and agree to mutual concessions. The concessions may include wage reductions and reduced benefits.
Figure no. wage increases are stopped and fear of further layoffs persists. work becomes harder. eventuating in defaults on bonds and other debt. As the recession increases in severity and length. but morale may suffer as hours become longer.
inconveniencing customers and damaging the economies of the cancelled destinations. Routes to marginally profitable or money-losing destinations may be cut. In turn. Quality may also be reduced. As the
. This may manifest itself in a variety of ways and is a common reaction of many big businesses in a steep recession. the company may compromise the quality. in the same size package in which the larger amount was previously sold. 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. Automobile manufacturers. and thus the desirability. Airlines. of its products. Coffee. In an attempt to further cut costs to improve its bottom line. may be cut with lesser-quality beans. for example. for example. for the same price. broadcast or online.
CUTS TO QUALITY OF GOODS AND SERVICES
Secondary aspects of the goods and services produced by the recession-impacted manufacturer may also suffer. be it print. for example. big advertising agencies which bill millions of dollars per year will feel the squeeze. further cramping the already squeezed-in passenger. may have lower maintenance standards. the decline in advertising expenditures will whittle away at the bottom lines of giant media companies in every division. They may install more seats per plane.brands. Giant food purveyors may offer less products. have done this in previous recessions.
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. replace unhappy workers with those more motivated. likening it to fire drill. Both government and business have responses to recessions. • They should use lean principles. Also communicate that "Companies” get better at what they do during bad times. perpetuating the recession as consumer spending drops. In the Philadelphia Business Journal. Strategic Business adviser Carter Schelling has discussed precautions businesses take to prepare for looming recession. Not even a single country seems to be off the hook. The high level of inflation has been a wet
. MARKETS IN RECESSION WORLDWIDE AND INDIA TOO: The current meltdown in the world markets is shaking the globe today. eager and highly competitive.
RESPONDING TO THE RECESSION
Strategies for moving an economy out of a recession vary depending on which economic school the policymakers follow. consumer confidence declines. While Keynesian economists may advocate deficit spending by the government to spark economic growth. • The business owners should gauge customers' ability to resist recession and redesign customer offerings accordingly.effects of a recession ripple through the economy.
World over the impact has diversified and its impact can be observed from the very fact of falling Stock market. However. For the decades long. 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.
. Amongst many countries.blanket for the global markets. All this is leading to a temporary recess for the markets from a regular busy schedule. 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. and major issue being the "LIQUIDITY Crises" in the market. 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. across the world. The cut in salary for the pilots being 90 % can any one imagine such a huge cut in salary. In the globalized market scenario. But the ultimately fact is that the market growth rate is always constantly high when comparing to such downfalls. India too not exempted from the impact of world financial crisis. have been witnessing such ups and downs. The roots of the world markets are nearly pulled away with the heavy downfall of the American financial giants.The badly hit setor at present being the financial sector. recession in jobs availability and companies following downsizing in the existing available staff and cutting down of the perks and salary corrections. these fluctuations are not new for global market. markets.
The industry hopes for the best alternations to overcome the acrimonious situations. The following circumstances are creating unwelcome interruptions to the Indian retail industry. Jobs decreased in Retail sector :
Figure no. Since the markets always have internally linked with each other.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. 3
. the impact of the crisis is generally shared among all.
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. in case of a leased deal.000 of these will actually come up. 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. a severe liquidity crunch. but only 1.000 rooms were expected to be opened for the market in the first six months of 2009.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. 3. 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. 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. The reasons for so much property lying unconstructed is a drop in overall demand. generalized uncertainty in the market and the non-viability of many projects. There are at least 15 million sq ft of commercial real estate blocked across Mumbai and Thane district. It is just a mis-match of demand and supply in the real estate business. In the star category hotel segment. there’s 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 fact.
• RPG group owned Spencer's retail does not find Ahmedabad a viable business option and has decided to quit. The rentals on CG Road are in the range of Rs 90-100. • Subhiksha has also downed shutters of a couple of its stores in Ahmedabad and is re-structuring its business. Ahmedabad does not seem to have a potential in organised retail in the near future. the rentals are also on their way down. • Future Group has meanwhile closed down its 70.RECESSION HAS DOWNED RETAIL RENTALS BY 25% Many retailers have downed their shutters or are downsizing their existing stores. "The closing down of Spencer's retail stores in Ahmedabad is because we did not achieve the targeted revenue. Reliance Retail has downsized its hyper mart format – Reliance Mart in Iscon Mall on SG Highway. The retailers are seeking a 15% reduction in common area maintenance (CAM) rates by 15%.000 sq ft Big Bazaar near Shyamal Cross Roads."
. Moreover. sources familiar with the development. down from Rs 120-130 three months ago. • The rentals have gone down by 20-25% in the last three months owing to recession. • • sMalls on an average are seeing an occupancy level of about 65-70%. • They are down by 25-30% on weekdays while it is down by 40% on weekends.
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. agree to correction in property rentals for retail stores in Ahmedabad. Though they are hesitant to reveal the exact figures.
The global financial crisis together with liquidity crunch in Indian market has hit the retail sector.
India bulls has also closed two of its hypermarts in the city as it is restructuring its retail business.•
While real estate developers like Alpha G Corp and Modi-Build Well Ltd. they deny any renegotiations for their projects. 60
. players of the retail industry from suburbs confirm that the business around festival season is down by 15-20 per cent than past years.
by including promotional events to attract maximum footfalls. whereas sales of other things are not exactly strong. the recession has hit almost every sector and leaving very severe effects on them.•
Shibu Philips. Country Head of “Le Marche”. and rewards a step forward. have told the media that they have put their expansion plans on hold. the hypermarket in Mega Mall at Oshiwara whose staple portion of revenue comes from food items confirms. “There’s a mixed response in the market. Oberoi Malls. which began operations at Gurgaon this year says. the chains that primarily function on food and grocery items. Food land Fresh and Spinach. So. otherwise it will affect the industries very badly and the future of the industries will be totally destroyed.
Vinod Bajaj. there is a greater need to escape or to save from the trap of the recession. Business Head. Gold and jewellery stores are doing well.”
This has led to the malls taking the concept of regular discounts. That is why. "Consumer spending is low as compared to previous years.
which is being restructured. The survey. automobiles. there are silver linings still amid the dark clouds looming on the horizon. which are still awash in petro-dollars. especially in key sectors like the IT. It has also shaken up the investment regime. textiles and construction material to the Gulf have jacked up the prices there. More than 1300 IT companies were operating in Bangalore alone. it has the second strongest hiring capacity globally. tens of thousands of job losses.000 (from 415. reveals that although the global slowdown will certainly impact the hiring plans of employers in India over the next three months.000 in FY 06). The stimulus package unveiled by the central government should boost exports. with the telecom sector likely to be declared off-limits for foreign investors.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. The scope and size of the export market to Saudi Arabia. Although the next two years or more are expected to user in a difficult phase for the national economy. while the employee base of the sector had grown to 553. the biggest market in the GCC. Easing on export curbs should be welcome news to some 30 million people in that region. with a Net Employment Outlook of 19 percent. This sector has been adversely affected by the global crisis. Before the crisis erupted. will be discussed later in this article. which covered 33 countries. industry and export-oriented firms. especially to the Gulf states. there were more than 1500 software firms in the country. Restrictions on exports of food. even if the oil prices have plummeted from $142 to $42 within six months.
. Similar was the projection of Infosys. Wipro. or nearly 3% of its 14. employers in Peru have been found to be the most upbeat with Net Employment Outlook of 24 per cent.800 workforce. As for the IT industry. is considering firing 3.000 employees over performance-related issues. Patni Computer Systems (PCS) has already laid off around 400 employees. Nasscom had initially projected a 21-24 per cent growth rate for the current financial year. when it lowered its dollar revenue guidance for FY09 by six percentage points.81billion. this is yet to be confirmed by the company. However. “There is a global scenario which is unprecedented and it will have an impact on everyone. the country’s third largest IT exporter. but the software association revised it downward in the wake of the global financial meltdown.724. Of the 33 countries covered by the survey. followed suit in the case of 700 freshers. It now expects revenue to be between $4.This outlook represents a sharp decrease of 24 percentage points quarter-over-quarter and 27 percentage points year-over-year. while IBM Corp. on the same ground. 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.
. Thus. developers. India will not be much affected. since it accounts for only 5% of the global voice market. while the rest comes from core services (business analysis.More trouble seems to be in store for this sector. Away from IT firms. consultants. Currently. financial planning etc). team leaders have all become victims of the recession facing the IT/Ites sector. the share of voice-based services has fallen from 95 % two years ago to 80% now and is expected to slide further.Also. a part-time blogger. For Pranav Dharma. The sector should review its priority and focus on product innovation (as opposed to merely providing services). India can emerge as a major player in the IT products category as well. since a majority of Indian IT firms derive 75% or more of their revenues from the US. As a result of putting all their eggs in one basket. processing services account for 60% of the industry. Advertisements. Indian firms could feel the heat. 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. the recession has shrunk ad contracts. Last year the ratio was 70:30 and it’s likely to be in the 50:50 range next year. if the Fortune 500 companies slash their IT budgets. sponsored listing and ‘pay per post’ have been affected by the slowdown. trainers. If this is done. the IT-Enabled Services sector may also face the crunch.
textiles. As a result. The manufacturing sector. Around 80 employees have been pink-slipped under its downsizing programme.1. Airlines. Hotels have already reported 20-25 % cancellation from international tourists who were booked to visit over the next one year. retail activity and many other sectors. The textile giant. while core industries slowed to 3. has started releasing employees. steel.000 workers.6 % a year ago. forcing us to take the decision. construction. commercial vehicles.There are reports of significant declines in output of automobiles. VF-Arvind.4 % during the same month from 4. including low cost carriers
. Standard &Poor’s (S&P) has downgraded Tata Motors rating for the foreign market. especially the auto industry. The Tatas have left Singur. petrochemicals.792 crores during August-October 2008 and were forced to lay off 65. The tourism sector has been affected. finance. has also sustained a severe hit. A survey of 125 companies by the commerce department in New Delhi has revealed that Indian companies lost export orders worth Rs. real estate. the global credit rating agency. too. “The tyre market is facing a slump due to the global meltdown. especially from the imported brands section. Exports fell by 12 percent in dollar terms in October. as there are few takers. The company witnessed a 30 % drop in sales in India compared to last year.
With hotel occupancy levels and room rates dipping by 20 % and 50 % respectively in just two weeks.5 percent due to duty cut announced by the government. This will be applicable to all exporters.10. Relief for exporters includes a 2% interest subvention up to March 2009 for pre. As a result of these measures. The industry also wants that the luxury tax on rooms be charged on the actual rates rather than on the printed rack rates. infrastructure and textiles. two-wheelers and commercial vehicles are set to come down by around 3. M&M.300. Ford. guests are paying 20-25% higher room rates because of this tax structure.000 crore package to pump prime the economy with specific measures for various sectors.347 crore against Rs. housing. a fall of 36 %. the sector is clamouring for a substantial cut in luxury tax slabs.16. Additionally. a Rs. According to market sources. The situation on the ground has since changed in the aftermath of economic recession and the current security threat. Prices of cars. including Maruti.350-crore booster for schemes like Market Development Assistance (MDA) and Market Assessing Scheme has been granted to help exporters develop new markets. The government has already unveiled a Rs.189 crore in the same month last year. A four-percent cut in Value Added Tax has also been announced to help the corporate sector in general. Skoda and TVS
.(LCCs). This amount is to be spent on revitalizing stake holders such as exporters. may lower their fares by 10-12 % to extend the benefit of lower fuel prices to the customers and rein in the sagging demand.and post-shipment export credit for all exports. Tata Motors. Hyundai. Almost all the major manufacturers. the Centre’s direct tax collection in November was Rs.
These nationals are already coming to India for manpower recruitment. apparel. textile manufacturers and farmers collectively to the tune of Rs. Other measures in the offering include easy access to the credit market for exporters. a public-private partnership (PPP) could be launched to tap the investment potential in various sectors.said they would be passing on the benefits of the reduced duty to customers immediately. slashed prices by up to Rs. There needs to be a shift in priority towards the Gulf states. sea and sand plus visits to spas and wildlife sanctuaries as part of the itinerary. Air-India and other airlines operating on the Gulf sector should coordinate with the Indian diplomatic missions in the Gulf states. ACC Ltd.5 on account of reduction in cement prices by 4 %. consumer electronics. and other products is still huge and can be tapped by adopting appropriate pricing strategies. a Rs. The remainder of the rescue package will be utilized for the relief of farmers and infrastructural projects.000 crore.000 crore line of credit will be extended to the National Housing Bank (NHB) and a similar allocation for the Exim Bank. Besides these measures. The demand for appliances. with more focus on medical tourism combined with the pleasures of sun. This should be possible thanks to the 4 % cut in excise duty and subsidy on export credit..9.4. Health tourism is one of them. the country’s biggest cement manufacturer. Of the total outlay. In the construction sector. so that applicants going there for visa endorsement could also be handed tourist brochure in Arabic along with their
IT services. In fact.passports. retail.7 percent. This makes it a hattrick for India’s GDP. respectively. The official estimates of India’s GDP growth for the first two quarters of 2008/9 stayed above 7. advanced economies at 1. the IMF foresaw the world economy growing at 3.4 percent and developing countries at 6. Even for FY 2008.5 percent. ranking the country “a disappointing 172nd. to name a few. We believe India will have to significantly gear up its educational infrastructure to meet this demand.5 % over FY 2003-08. which has now recorded in excess of 9% GDP growth in each of the last three fiscals. By early November (just four months later) these forecasts had been slashed down to 2. the report expresses dismay over India’s literacy rate of just 61%. minus 0. According to the Executive Summary of Angel Broking’s “India Education Sector Report2008″. with future projections indicating the same growth trajectory. This facility should also be available at the offices of national carriers of India and the GCC states.9 percent in 2009. growing at over 8% in four of the five fiscals.1 percent.” Yet. financial services and aviation. there is a huge requirement of talent in the field of hospitality.”
. India logged in GDP growth of 9%.3 percent and 5. GDP growth in FY 2007 accelerated and came in at an impressive 9. commendable by any standards. “India’s GDP has grown at a compounded grate (CAGR) of around 8. As recently as July this year.2 percent.6%.
In this context. now is the time to strike a deal in view of the incentives being offered. the growth areas are real estate. and seasonal market like pilgrimage. 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. Indian businessmen might be interested to note that Alshoula Holding and Bayt Al-Mal Investment. two major Saudi investment companies. renewable sources of energy. 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. household and food items that are available at cheap prices. still remains vibrant as it gears up for the expansion mode.5 million pilgrims become consumers of electronic. It will also have 97 palaces. it is worthwhile considering the Saudi market which.But challenges still remain. If these challenges represent one side of the coin.380 housing units designed to meet the requirements of Saudi citizens. Right now.348 million square meters. Covering an area of 2.350 commercial shops and 1.
. while residents of these housing units will have access to recreational facilities. when nearly 2. especially solar. unlike a major segment of the international market. For exporters from Hyderabad. the project will have 3. On the export front. there are opportunities gallery on the other.
Around 10 acres of land will be utilized initially with the remaining area allocated for future expansion. Hyderabad. sound technological base and innovative solutions can ride out the crisis. The Andhra Pradesh Industrial Infrastructure Corporation Ltd recently allotted 25 acres of land for the project within the Fab City. Surana Ventures Ltd of Hyderabad. the city’s new kid on the block in the field of solar energy. Only those with a strong will.300 crores. with temperatures shooting up to 50 degrees C during summer. Set up in Hyderabad in February this year with an investment capital of around Rs. In this context. 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. the company is a joint venture between Surana Telecom & Power Ltd and Bhagya nagar India Ltd. this is an exciting time of challenges and opportunities. now that module production has got under way. So. That production of solar cells would begin in three-four months. should stay tuned to new developments on the anvil.
. 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.Similarly. The export-oriented facility is coming up in a SEZ-designated area and will enjoy fiscal benefits.
which is a good move. Recession will push the people to re-manage their personal finance – they will count every penny spent more vigorously than ever.10 REASONS HOW RECESSION IS GOOD FOR THE PEOPLE Economy today causes most of headaches . 3. According to the research. 2. Recession push the people to work smarter – the people will use more creativity juices to tackle the recession.not only in the US or India but all over the world. Now they will start thinking about investing in a more stable and inflationfree investment options. which leads to better productivity and more breakthroughs. For the people investing in precious metal. However. recession does bring good things in life. Recession is good for their personal finance and money management.
. there are 10 reasons how recession is good for the people: 1. recession soars their investment value.
nothing better than a rebounding economy be sure or ready to ride the wave to reap the reward. Recession tests and forms the people’s character and willpower. definitely they will become new and better men. 8. by nature. less meat eating and more vegetable eating. offering the people more discounts and perks at a longer period to attract and retain customers and visitors. 5. which is good for them. What comes down must comes up . Hence.
. The people will live a more religious life – they will think of God more and seek for spiritual guidances more. Energy saving and alternative energy companies will reach record high in sales. 9. less eating out and more home cooking.definitely a good thing! 10.Stronger bond and stronger will to survive the recession . Retail businesses will usually. walking the pavement or riding a bicycle instead of driving a car.4. New energy-related business will be established and gain better success rate. 7. When the recession has passed. Recession will make family members think more of their family . The people will live a healthier and greener life – they will start reducing nonessential household power consumption. 6. 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. and many other benefits.
they (retailers) are limiting inventories because it is critical in maintaining gross margins. vegetables and drinking water. the industry is presently growing at 14 per cent against six
. “As of January. Moreover. These are the basic needs which we as a common man can not produce by our self. “The present slowdown should not last more than six months. According to the minister. Companies in the retail sector have been working better now with the secured loans that banks have been forthcoming with. there is nothing much to worry about recession because.”
MANY INDIAN INDUSTRY TO DO WELL DURING RECESSION
1. According to Ministry of Food Processing Industry (MFPI). Retailers may reduce prices in the next few months in an effort to make people buy more. the steps taken by the government to curb inflation and interest rates has helped the industry.”
According to the findings.” He said. Gibson Vedamani.DATA & INTERPREATIONS
From the above research. Value retail is already back on track. the food processing industry in India was seeing growth even as the world was facing economic recession. CEO of Retailers Association of India told PTI. it is analysed that Retailers are likely to cut prices in future to create demand. Food processing companies will not be affected much and rather will earn profits by increasing the prices. the mid-segment consumption is steady. FOOD No one can survive without basic food material like milk.
the marketing and management consultants will be called for to reduce the costs and to show
. is expected to reach over US$ 75 billion by 2012 and US$ 150 billion by 2017.The Indian food market is estimated at over US$ 182 billion and accounts for about two thirds of the total Indian retail market.to seven per cent growth in 2003–04. BMW are the most recent entrants). 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. MARKETING CONSULTANTS As in the current business slow down survival will be the main focus. Luxury car makers are pouring in to woo the nouveau riche (Audi. So luxurious product market will not be affected and in fact to maintain the lifestyle those affluent will spend more for it. 3. HEALTH CARE India in case of health care facilities still lakes the adequate supply. They will not change their lifestyle and will not stop spending on luxurious goods. the retail food sector in India is likely to grow from around US$ 70 billion in 2008 to US$ 150 billion by 2025 2. Still there are so many urban areas were you could hardly find any multi specialty hospital. Further. And in case of metros the market sentiments itself created a need of psychological consultation. Healthcare. 4. which is a US$ 35 billion industry in India. 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. In health care sector also there is huge gap between demand and supply at all the levels of society.
Pharma Retail is a format which has been growing and is still growing. Also businesses like production of religious texts and religious materials. 48 billion in 2007.the ways to survive and stay in market. but in India. they will seek entertainment at home and hence advertising revenues will increase for the commercial channels. PHARMA RETAIL CONTINUES GROWING IN SPITE OF RECESSION Recession has bitten almost entire Retail Sector.81 billion by 2012. Others may join hands to fight with this situation together will call for the Marketing & consultants. According to the PWC report. According to Ministry of Commerce and Industry’s estimation. 34 billion by 2012. MEDIA AND ENTERTAINMENT In current bad times. religious channels will do well. And this is quite obvious as customer can postpone their spending on everything other than pharma products. consultancies will be right there to help clients decide where to wield the axe. The TRP of religious channels will increase compare to the other entertaining/commercial channels. When businesses are cutting back. the Indian M&E industry is expected to grow at a compound annual growth rate (CAGR) of 18 per cent to reach US$ 23. where people are losing jobs and getting enough time to watch TV. further likely to grow by 22 per cent over the next five years and be worth US$ 12. According to a report published by the Federation of Indian Chambers of Commerce and Industry (FICCI). the television industry was worth US$ 5. In a booming market there are growth strategies and opportunities to advise on. 6. 5. 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. In
could ruin livelihood security of small traders and a large number of persons employed with traditional form of retail business. to the entry of multinational retail giants in India. 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. So is it recession….
Top 5 Pharma Companies :
Rank 1 2 3 4 5
Pharma Companies Cipla Ranbaxy GlaxoSmithKline Piramal Healthcare Zydus Cadila
Table no : 2
22. 2908 crore. The country has so far not allowed any FDI in multi-brand retail due to strident political opposition. the government has begun to seriously think in terms of revisiting its policy on FDI in the retail sector.
. particularly of the Left.2008.136 new outlets are opening by the different retailers.. who in their opinion.
As fears of foreign fund flows into India diminishing in the next few months are becoming real.
..jobs are hit in big way.The retail market in India is facing slowdown with the ongoing financial crisis happening across the world markets.. Although india is yet insulated from global financial crisis.... that is why their demand is inelastic. but the indirect effect on indian corporate is very high... the demand is not changed according to the prizes....IT sector and real estate is hit in big way
....stock broking. The industry hopes for the best alternations to overcome the acrimonious situations. investment banking.. i..e...and .”
RECESSION IS AFFECTING THE INDIAN JOB MARKET
The unemployment rate can rise to as high as 8.. The following circumstances are creating unwelcome interruptions to the Indian retail industry.. all sectors are effected but some sector like finance. No one can survive in the world without these basic requirements.5 percent by the end of next year in America. will it really affect Indian job market?? With global downturn taking its toll on India.merchant banking.. the impact of the crisis is generally shared among all.
“The industries like food. Companies are reluctant to ramp up hiring until they feel certain recovery. healthcare and pharma industries are still going well in the era of recession because these are the basic requirements of each and every individual... Since the markets always have internally linked with each other. about 15 lakh people employed in the exporting sector will be out of jobs by March Layoffs...
which were in pace with information technology (IT) industry. Bank of America. the impact of recession in US economy has caused mammoth impact on Indian real estate market as well. has created a very fast drops/recession in financial industry and created a crisis in all over US economy. the real estate industry was a booming industry. The high net worth of individual investors has created a very fast pace of demand in Indian real estate sector. 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. Both of these firms were invested their more part of funds into real estate sector without having the proper analyzing or effect. The recent changes. Till now. Presently. which has a very high impact image of investing in India.•
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. as it is witnessing the recession. which has created an ambiguity as to how much construction activity is actually taking place and one can’t gauge the demand and supply trends accurately.
. Coupled with this manpower shortage is the shortage of availability of relevant statistics. 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.
discounts may also be seen on branded goods. which is bullish and brings down the net worth of the leader of Indian real estate player very low. There should be a major contraction in consumer spending that will be aggravated by banks being overcautious in lending. till it recovers from the ill effects of financial crisis. Wipro. 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. Banks in India are tightening their rules on the credit card limits and its issuance. The impact can be shown in share price of DLF. Retailers need to close stores that are in loss. a fall up to 30 per cent in sales is expected.•
This recession also affected the Sensex. Reliance Group. if we include jewellery in luxury. 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. sinking stock markets and prospects of a prolonged recession. If the government can ensure inflation adjusted consumer spending going up or at
FUTURE OF RETAIL SECTOR
Shoppers are closing their wallets worried by job losses. 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. GMR group. 40 per cent on sportswear. are in for difficult times. Unitech. Luxury Goods shall also start taking a hit & their sales to drop by around 20 per cent. Satyam etc groups. resulting in less money being made available for spending. those who do not. consumers spendings on items that are in deep discounts.
It is about restoring confidence. it is found that some industries are getting very much affected from the recession while some are going well in spite of recession.
. 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. Across the globe the sales have gone down. it is a dilemma that whether the recession is there actually in the market or it is more psychological. So. there is some hope.least being stable. From the research.
it is very well concluded that some industries like Real Estate. however.
. reduction in costs and delivery of value-added services to sustain profit margins. India is a strong domestic demand story. interest rates are expected to be stable primarily due to control over inflation and proactive measures undertaken by the RBI.CONCLUSION
From the analysis. be minimal as the factors driving growth here are more local in nature. The impact of the sub prime crisis along with a slowdown in mortgages has led to a significant lowering of growth estimates. so any slowing in the US is likely to have a more muted impact on India. Further. IT. any slowdown there would have an impact on most of the global economic variables. stock broking etc are getting very much affected due to the heat of recession. 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. Unlike the rest of Asia. Since the United States dominates the global economy. merchant banking. The overall impact of a US slowdown on India would.
Figure no. 6
the US based company where recession has hit the worst. there are no changes in companies functioning in India.
The employed and businessmen are affected by recession and they will overcome this situation by strong will and a positive attitude. Business is a game of risks and there are always ups and downs. About 600 students have completed this two weeks course and most of them are absorbed by Bharti retail.RECESSION IS MORE SENTIMENTAL THAN REALISTIC IN INDIA
The economic slowdown is more sentimental than realistic. However The media has glorified recession that has left deep impact on common men. the thing that they are doing is going steady and slow. He also asked to take recession as an opportunity to flourish and to strengthen existing business. • Wal-Mart. Bharati and Wal-Mart has begun a training institute in Amritsar that is Sponsored by the Punjab government. US and other western countries are worst affected by recession and India is quite far away from this crisis. They have not cancelled or postponed their plans. this is what the world's largest retailer Wal Mart HR head (India) believes. They believe that recession is a part of business.
retail business in small cities like Rajkot have been relatively immune to it. It claims to be on track to achieve its targets. • Part of the Future Group. Big Bazaar announced its three-day shopping event 'Sabse Saste 3 Din' beginning from January 24.5 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. • Consumer spending is likely to shift from luxury goods to essentials with a slowdown in the economic cycle impacting demand negatively. but not exactly the recession.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. it is more sentimental rather than the realistic. • The retail chain has earmarked Rs 15 billion investment for the expansion over a two-year period up to March 2009. 2009.5 million square feet. According to a Big Bazaar official. spread over 1. While most of the sectors across the country have been affected by recession. This is showing that there is a slowdown in the Indian economy or Retail industry.
. according to a report. So. So. the city is still witnessing considerable consumer spending in the recent times.
Taxes including excise duty and custom duty should be reduced to lighten the adverse effects of economic crunch on the various industries. • • • In IT sector.
. there should be correction in salary offerings rather than job cutting. There are some suggestions which will help to reduce or remove the bad impacts of recession. Public should spend wisely and save more.RECOMMENDATIONS & SUGGESTIONS
In the era 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. the marketers should adopt such approaches that can help or save the business from the trap of recession.
asp http://www.business-standard.merinews. "The Current Economic Recession". Second edition.asp • • • • • http://blogs.com/westsideplus/index.aspx?page=article§id=1 http://www.com/BinduRathore/D951fX4E57143664 http://www.
WEBLIOGRAPHY • • • http://en.mumbaipluses. Congressional Research Service.fibre2fashion. • Gross Daniel. Jan 10. Labonte Marc. 2002.wikipedia.rediff. • Pelaez Carlos. 2007.com/catFull.jsp?articleID=144890 http://www.siliconindia.com/money/2008/feb/14spec.org/wiki/Recession http://www.R “Research Methodology” Vishwa Prakashan. “Global Recession Risk: Dollar Devaluation and the World economy”. July 10. “Recession Literature”.indiaretailing. 2008.com/industry-article/9/877/impact-of-recession-inamerican-economy-on-india1. M.php?autono=342149
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