RECESSION

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INTRODUCTION

Almost everybody today seems to be discussing

about the US Recessionary trend and its impact on
emerging countries, more particularly India Economists,
Industrialists and the common man on the streets seem
to have been horrified by the very thought of recession in
India and that too due to US. Decreasing industrial
production, inflation, decreasing job opportunities, cost
cutting, reducing purchasing power parity, et al are the
aspects discussed among them through every possible
mode like articles, talks & walks and places like
washrooms, canteens, etc.

India will not be impacted largely by the US

recession, simply because India is not which it was in the
'80s-'90s.Although it will be immature on my part to say
that India will not be impacted by the US recession at all,
but the truth is that it will not get impacted adversely in
the magnitude of what everyone feels.
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WHAT IS RECESSION?

A drastic slowing of the economy. Where gross

national or domestic product has fallen in two
consecutive quarters. A recession would be indicated by
a slowing of a nation's production, rising unemployment
and falling interest rates, usually following a decline in
the demand for money. A popular distinction between
recession and depression is: 'Recession is when your
neighbors lose his job; depression is when you lose yours.

RECESSIONS ARE the result of reduction in the

demand of products in the global market. Recession can
also be associated with falling prices known as deflation
due to lack of demand of products. Again, it could be the
result of inflation or a combination of increasing prices
and stagnant economic growth in the west.

The average spending by consumers has

decreased drastically. With less demand there is bound
to be less production and rising unemployment condition.
Many industrial and corporate houses are churning their
workforce.

IT industries, financial sectors, real estate

owners, car industry, investment banking and other
industries as well are confronting heavy loss due to the
fall down of global economy. Federation of Indian
chambers of Commerce and Industry (FICCI) found that
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faced with the global recession, inventories industries

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like garment, gems, textiles, chemicals and jewellery had
cut production by 10 per cent to 50 per cent.

Stocks markets are major indicators of economy

trend. A rising economy is always well reflected on the
bourses. Shares prices of many renowned companies
have touched the rock bottom in the current economic
turmoil. Indian stock exchange has also lost more than
half of its value in a period of 8-9 months. Most of the
world economies including India are declaring bail-out
packages for doomed industries.

1.3 percent industrial growth is the lowest IIP

(index of industrial production) data ever registered since
last ten years. April-august industrial growth rate is 4.9%
which is also the lowest for the first five months of a
financial year in 14-year period except 1998 and 2001.
To make matters worst, a member of the PM’s economic
advisory council and director of the National Institute of
Public Finance and Policy have confessed that India is
going through industrial recession.
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CAUSES OF ECONOMIC RECESSION

Generally speaking, a recession is when there is

a tightening of the economy, usually for a certain period
of time.

Given below are 10 signs that usually indicate

that a recession is knocking.

 The Rate Of Joblessness Assumes

Disturbing Proportions.
Usually, the rate of jobless people remains
steady every month. But if there is a constant, steep rise
in that number, then this could be a sign of recession.

 Large Companies Start Giving Depressing

Profit Figures.
When many companies across all sectors start
giving out depressing sales and profit figures, then alarm
bells should start ringing.

 Borrowers Start Defaulting.

When borrowers are unable to pay back their
loans on homes, vehicles, businesses and credit cards,
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then this could be another indication of a falling

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economy.
Here in the United States, even lenders such as banks
and credit unions have started defaulting on their
financial obligations, due to the sheer number of
borrowers who are in no position to repay loans they
have taken out.

 Prices Of Essential Commodities Shoots

Up.
When prices of food, fuel and other utilities
shoot up - and the government seems helpless to do
anything - then it could be said that inflation is fanning
the flames of a possible recession.

 Companies Stop Filling Vacancies.

When companies decide to keep their job
openings vacant instead of hiring new staff, then this
again is another sign that a recession has afflicted the
economy.
Many companies might also offer voluntary retirement
programs in order to reduce their workforces and cut
expenses.

 Prices Of Property and Stocks Come Down

Dra stically, but nobody buys them.
When repossessed homes and stock prices
come down in value, but nobody has the funds to buy
them, then it can be truly said that the economy has
been hit by a recession.
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 The Country's GDP Goes Down.

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When a country's GDP, or Gross Domestic
Production, registers a continuous downward fall, then
this could be another sign that the economy is in
recession.

 Savings Are Used For Day-To-Day

Expenses.
When people start terminating their fixed-term
deposits, such as CDs and IRA’s, and sell off other assets
to meet their day-to-day expenses, then this could
indicate that a recession has started doing some serious
financial damage.

 You Start Worrying About All Of The

Above.
When you start feeling the pinch and start
worrying about your own future on the above points,
then this will indicate that the recession has now reached
your door.
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EFFECT IN INDIA
There are three most popular factor effects in India
during recession.

1) Stock markets & recession.

2) Real estate market and recessions.

3) Politics and recessions.

1) Stock markets & recession:-

The economy and the
stock market are closely related. The stock markets
reflect the buoyancy of the economy. In the US, a
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recession is yet to be declared by the Bureau of

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Economic Analysis, but investors are a worried lot. The
Indian stock markets also crashed due to a slowdown in
the US economy.

The Sensex crashed by nearly 13 per cent in just two

trading sessions in January. The markets bounced back
after the US Fed cut interest rates. However, stock prices
are now at low ebb in India with little cheer coming to
investors.

2) Real estate market and recessions:-

The origin of the
present global recession and resultant credit crisis could
easily be traced to the ‘sub-prime crises’. Fraud was not
only present, but, in most cases, could have been
identified with adequate underwriting, quality control
and fraud prevention tools prior to the loan funding.
The Federal Bureau of Investigation in the United States
of America correctly identified the epidemic sub prime
crisis could have been averted had the administration
acted with even minimal competence.
The sub prime crises resulted in the down fall of the real
estate market in the United States. As per previous
experiences, the real estate market usually weakens
before a recession. In this instant too, it happened
exactly the same.
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3) Politics and recessions:-

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Generally an administration
gets credit or blame for the state of economy during its
time. It is generally assumed that government activity
has some influence over the presence or degree of a
recession. Economists usually teach that to some degree
recession is unavoidable, and its causes are not well
understood. Consequently, modern government
administrations attempt to take steps, also not agreed
upon, to soften a recession. They are often unsuccessful,
at least at preventing a recession, and it is difficult to
establish whether they actually made it less severe or
longer lasting.

The following measures can be adopted

to tackle the recession

• Tax cuts are generally the first step any government

takes during slump.

• Government should hike its spending to create more

jobs and boost the manufacturing sectors in the
country.
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• Government should try to increase the export
against the initial export.

• The way out for builders is to reduce the unrealistic

prices of property to bring back the buyers into the
market. And thus raise finances for the incomplete
projects that they are developing.

• The falling rupees against the dollar will bring a

boost in the export industry. Though the buyers in
the west might become scarce.

• The oil prices decline will also have a positive impact

on the importers.

C ONCLUSION

Over the past couple of months, fears of a

slowdown in the United States of America have
increased. The impact of the subprime crisis along with a
slowdown in mortgages has led to a significant lowering
of growth estimates. Since the United States dominates
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the global economy, any slowdown there would have an

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impact on most of the global economic variables.

For India, it could mean a further appreciation

in the rupee Vis--Vis the US dollar and a darkening of
business outlook for sectors dependent on US
companies. The overall impact of a US slowdown on
India would, however, be minimal as the factors driving
growth here are more local in nature. Unlike the rest of
Asia, India is a strong domestic demand story, so any
slowing in the US is likely to have a more muted impact
on India. Strong growth in domestic consumption and
significant spending on infrastructure are the two pillars
of India’s growth story. No sector has a dominant
influence on earnings growth and risks to our estimate
are limited. Corporate India is also learning to master the
art of efficient capital management, reduction in costs
and delivery of value-added services to sustain profit
margins. Further, interest rates are expected to be
stable primarily due to control over inflation and
proactive measures undertaken by the RBI.

References

1) http://www.imf.org/external/pubs/ft/weo/2009/updat
e/01/index.htm.
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2) http://en.wikipedia.org/wiki/Global_recession.

3) www.ciol.com/News/News.../Global-recession,-
an...India/

4)www.eastrovedica.net