Study Based Project on Recession | Recession | Financial Crisis Of 2007–2008

INDEX Contents

1. Introduction 2. Objectives 3. Hypothesis 4. Research Methodology 5. Limitations 6. Review of Related Literature A) Recession in India B) Recession 2008 C) Recession : India’s Prospects in 2009 E) Consumer Attitudes During Recession F) What Causes It ? G) Stock Markets & Recession H) Impact Of A US Recession On India I) What Has Hit India ? J) Measures To Tackle Recession 7. Data Analysis & Interpretation 8. Conclusions 9. Suggestions 10. Bibliography 30 30 32 33 34 37 39 40
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D) Global Meltdown : Complete Coverage 23

INTRODUCTION
A significant decline in activity across the economy, lasting longer than a few months. It is visible in industrial production, employment, real income and wholesale-retail trade. The technical indicator of a recession is two consecutive quarters of negative economic growth as measured by a country's gross domestic product (GDP); although the National Bureau of Economic Research (NBER) does not necessarily need to see this occur to call a recession. A recession is a decline in a country's gross domestic product (GDP) growth for two or more consecutive quarters of a year. A recession is also preceded by several quarters of slowing down. An economy, which grows over a period of time, tends to slow down the growth as a part of the normal economic cycle. An economy typically expands for 6-10 years and tends to go into a recession for about six months to 2 years. A recession normally takes place when consumers lose confidence in the growth of the economy and spend less.

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This leads to a decreased demand for goods and services, which in turn leads to a decrease in production, lay-offs and a sharp rise in unemployment. Investors spend less; as they fear stocks values will fall and thus stock markets fall on negative sentiment. Risk aversion, deleveraging and frozen money markets and reduced investor interest adversely affect capital and financial flows, import-export and overall GDP of an economy. This is exactly what happened in US and as a result of contagion effect spread all over the world due to high integration in the global economy. “A period of general economic decline; typically defined as a decline in GDP for two or more consecutive quarters. A recession is typically accompanied by a drop in the stock market, an increase in unemployment, and a decline in the housing market. A recession is generally considered less severe than a depression, and if a recession continues long enough it is often then classified as a depression. There is no one obvious cause of a recession, although overall blame generally falls on the federal leadership, often either the President himself, the head of the Federal Reserve, or the entire administration.”

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OBJECTIVES
• To know about Recession occurred in India. • To know about impact of recession on India. • To understand the causes of recession. • To know how to measure or control over recession. • To know about what has hit India during the time of recession. • To understand various problems faced by Indians during the time of recession. • To understand the customer attitudes at the time of recession. • To understand how India is hurt because of recession in US.

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HYPOTHESIS
In empirical research, assertion made about some property of elements being studied. Such an assumption is made early in the investigation, guiding the investigator in searching for supporting data.

The hypothesis is found to be true or false at the conclusion of the research study, depending on whether or not the proposed property actually characterizes the elements.

One of the important problems faced by India is recession. Recession has hit India very hard due to which the inflation rate is going higher and higher.

• The various problems were faced by IT industries during recession such as unemployment. • A recession normally takes place when consumers lose confidence in the growth of the economy and spend less.

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• This leads to a decreased demand for goods and services, which in turn leads to a decrease in production, lay-offs and a sharp rise in unemployment.

• Investors spend less as they fear stocks values will fall and thus stock markets fall on negative sentiment.

• The Indian stock markets also crashed due to a slowdown in the US economy.

Drop in global prices of tradable has reduced profitability of local producers of these goods, and the viability of their investment projects.

• India was a net importer of $92 billion of commodities in 2007-08 – so the global drop in commodity prices helps. • Wealth effects on real estate and equities partially offset by the rise in gold prices.

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RESEARCH METHODOLOGY
Research makes progress possible. Research is the systematic design, collection, analysis and reporting of data. Research comprises of defining and redefining problems, formulating hypothesis, collecting, organising, evaluating data, making education and reaching to conclusion whether they fit into the formulation of hypothesis. Generally the research is considered as an endeavor to arrive at the answers to intellectual and practical problems through the application of scientific methods to the knowledge universe. It is the movements from known to unknown. In this chapter, I have covered all the related aspects that come under the term of research and methodology adopted. It has covered all the research which is being out and all the methods which are used, how they are being adopted to seek of the desired objectives. The methods and research of its conduct are utilized in this chapter that can be seen.
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1. Research Work :
Research in the field of commerce has been classified into two different types this two types are :

a)

Fundamental Research.

b)Applied Research. 2. Sampling :
It is also divided into parts. They are as under.

i)

Census Survey : ii)Sample Survey :

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Methods of Data Collection
Data collection is the process by which quantitative and qualitative data or record is collected according to the objectives of the study. Collection of data refers to a purposive gathering of information relevant to the subject matter under study and the methods used depends mainly on the nature, purpose and scope of the enquiry to be undertaken, as well as on the availability of resources and time. There are basically two types of data, they are :

1) Primary Data. 2) Secondary Data.
This project is only on the basis of secondary data.

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Secondary Data :
Secondary data are those which have been already collected by others. When it is not possible to collect data in primary form. The researcher may take the help of secondary data. They are those which have already been collected with some other view in mind. They are collected for serving the objectives other than what the researcher might have in his mind. The sources of secondary data include :  BOOKS.  WEBSITES.  JOURNALS.  MAGAZINES.  NEWSPAPER.

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 INTERNET

LIMITATIONS

As the project is based on Secondary data it is difficult to get accurate data or information of the current scenario.

• It’s difficult to forecast about the future prospects on the basis of Secondary data.

• The greatest challenge is to know the current state of the economy.

Because of the stipulated time given for the completion of the project, it becomes very difficult to get more and more information about the topic.

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REVIEW OF RELATED LITERATURE
The economic slowdown of the advanced countries which started around mid-2007, as a result of sub-prime crisis in USA, led to the spread of economic crisis across the globe. Many hegemonic financial institutions like Lehman Brothers or Washington Mutual or General Motors collapsed and several became bankrupt in this crisis. According to the current available assessment of the IMF, the global economy is projected to contract by 1.4 per cent in 2009. Even as recently as six months ago, there was a view that the fallout of the crisis will remain confined only to the financial sector of advanced economies and at the most there would be a shallow effect on emerging economies like India. The contagion has traversed from the financial to the real sector; and it now looks like the recession will be deeper and the recovery longer than earlier anticipated. Many economists are now predicting that this ‘Great Recession’ of 2008-09 will be the worst global recession since the 1930s. During 2008 and 2009 the global economy was rocked by soaring food and fuel prices, the collapse of global financial
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markets, and a severe contraction in world economic demand. Global economic growth declined from 5.2 per cent in 2007 to a forecast -1.1 per cent in 2009. The crisis also caused a significant change in the prospects of developing countries. Economic growth in developing countries in 2009 is projected to be 1.7per cent. This is substantially lower than the observed growth rate of 8.3per cent in 2007. The global recession has caused reduced global demand for the region’s main exports—manufacturing, commodities and tourism. This has had a substantial impact on the economies of Asia and the Pacific. An example of the impact on manufacturing is Cambodian clothing exports to the US—its largest market—dropped by 27 per cent in the first 5 months of 2009 from the corresponding period of 2008. There have been similar falls in exports observed in China, Indonesia and Lao PDR. The crisis has also depressed demand for commodities and led to a sharp decline in world prices for minerals and energy since the record highs of mid-2008. The World Bank observed that by December 2008, crude oil prices had dropped to $41 a barrel, down more than 70 percent from the July 2008 peaks, while non-energy commodity prices declined by nearly 40 percent over 2008.

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RECESSION IN INDIA
Global economic meltdown has affected almost all countries. Strongest of American, European and Japanese companies are facing severe crisis of liquidity and credit. India is not insulated, either. However, India’s cautious approach towards reforms has saved it from possibly disastrous implications. The truth is, Indian economy is also facing a kind of slowdown. The prime reason being, world trade does not functions in isolation. All the economies are interlinked to each other and any major fluctuation in trade balance and economic conditions causes numerous problems for all other economies. According to official data, industrial growth in august has plummeted to mere 1.3% compared to the same month in 2007. That definitely is cause of concern for policy makers and industries. This data also raised fear of low GDP growth of India. It is being suspected that, our country will face huge problems in achieving even 7.5% growth rate in this fiscal. 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
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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. Several crucial sectors of Indian economy are likely to face serious problems in coming months. Foremost among them is real estate sector. The demand for houses have reduced significantly and property prices across India has registered 1520% fall. Things are likely to get worst as another 20 percent drop in prices is quite possible in coming six months. The woes of real estate have spread to construction industry as well. Because of less demand for houses, construction companies are going to suffer big time. Financial services segment is also likely to be a major victim of economic slowdown because of less demand for credit and reduced liquidity in market. These three segments account for almost one third of services GDP and because of their current and impending plight, attaining 7.5% GDP growth in this current year is quite improbable. Industrial slowdown will also affect transport services. Transport companies are likely to witness drastic fall in their business and profits. Global recession will also lead to less tourists coming to India. That will negatively affect tours and travels industry.

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RECESSION 2008
Most of the world’s stock markets in late 2007 and early 2008 were touching sky. Even Indian stock market made hay while the sun shone on its horizon. Speculation was rife in many corporate headquarters that, this over exuberance and huge flow of money does not justify stock indices of several countries. There were signals of herd mentality and greed looming all over. Those signals finally came to life in early 2008. It started with IMF prediction of world growth falling to 4.0 percent from 4.9 percent. 4.0 was still a respectable prediction but that announcement was changed just after two months. USA is a dominant force in world economy and as per data it represents 21 percent of the world economy. Changing economic statistics pointed towards a possible USA recession and that signified a global downtrend in economic cycle because of domineering impact of American economy. Many countries, particularly developing ones are heavily dependent on USA and a hint of slowdown in America spelled doom for them. The average spending of American consumers reduced significantly and that resulted in reduced demand for imported items.

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Oil is extremely important for any country and 2008 witnessed highest ever increase in oil prices. Due to high oil prices, food prices also increased significantly. Crude oil prices rose to $ 147 per barrel from $ 80 per barrel in a span of 6-7 months. That fuelled global inflation to a dangerous mark. 2008 also witnessed unprecedented credit crisis across the world which resulted in closure of several established investment banks. Things started getting worst with U.S. subprime-mortgage market. This induced a tremendous housing market correction of huge implications for pushing up credit costs worldwide. Because of this correction, a good number of Americans, European and Asian banks had to write down billions of dollars in holdings. In fact, few banks filed for bankruptcy and that includes name like Lehman Brothers. It was biggest ever bankruptcy case in US history. More than 81 companies have filed for bankruptcy in USA. Unemployment rate also increased substantially in USA and many people had to leave job. Another 1, 57, 000 jobs were lost in September 2008. Many developed and developing countries are struggling with low GDP and decreasing economic growth. Credit crunch has spread all over the world. However, world over, policy makers are putting in extra liquidity and

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several other measures to stem the fall but nevertheless, we seem to be going through economic recession.

RECESSION : INDIA'S PROSPECTS IN 2009
The global financial and economic crisis keeps getting worse. A couple of weeks back the giant Citibank had to be bailed out with several hundred billion dollars in cash and guarantees from the US authorities. Last week America reported November job losses of more than 530,000, the biggest single month figure since 1974, taking the US unemployment rate to 6.7 percent, the highest in 15 years. The US, Eurozone, UK and Japan are now officially in recession, in the sense of having experienced two successive quarters of negative growth. Several analysts predict that the rate of contraction of the US economy in this final quarter of 2008 may be at an astonishing annual rate of 4 to 5 percent. Similar pessimism pervades the other two largest economies in the world: Europe and Japan. There is enormous uncertainty about the depth and duration of the current global recession. But the majority of expert opinion now concedes a

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substantial likelihood that this will be the worst recession since the Great Depression of the 1930s. Both the severity of the financial crisis and its massive collateral damage to the real economy has confounded the optimists over the past year. Quite often, experts claimed that "the worst of the financial crisis is behind us", only to be bushwhacked by the next big bail-out or credit seizure.

Equally remarkable, and much worse in impact, has been the speed at which the cumulating financial crisis has throttled real economic activity since summer 2008. The rapid onset of recession in industrial (advanced) countries has clearly overwhelmed the forecasting abilities of many institutions, including the IMF.

As recently as July this year, the IMF foresaw the world economy growing at 3.9 percent in 2009, advanced economies at 1.4 percent and developing countries at 6.7 percent. By early November (just four months later) these forecasts had been slashed down to 2.2 percent, minus 0.3 percent and 5.1 percent, respectively.

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Global meltdown: Complete coverage
For its projections of US economic growth in 2009, the IMF swung from plus 0.8 percent in July to minus 0.7 percent in November! And it's a safe bet that if the IMF were making a fresh set of projections for 2009 today, all these numbers would look even worse. Nor does the recent "advance release" of the global outlook for 2009 by UNCTAD provide any succor. Like the IMF, the UNCTAD foresees global growth at just over 2 percent in 2009 at PPP weights and at only 1 percent at market exchange rates. The latter number means that global growth in 2009 is expected to be at only about a quarter of the pace enjoyed in 2006 and 2007. Both institutions forecast severe damage to world trade, which is expected to expand at only 2 percent in 2009 as compared to over 9 percent in 2006 and 7 percent in 2007. For the Asian giant, China, both the IMF and UNCTAD expect growth to slow to about 8.5 percent in 2009 from the scorching 12 percent pace of 2007. Interestingly, several China-based analysts foresee much sharper deceleration.

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What about India? How bad will it get for us? The official estimates of GDP growth for the first two quarters of 2008/9 stayed above 7.5 percent. However, industry-wide indications after September are uniformly gloomy. There are reports of significant declines in output of automobiles, commercial vehicles, steel, textiles, petrochemicals, construction, real estate, finance, retail activity and many other sectors.

Exports fell by 12 percent in dollar terms in October and advance information points to a similar decline in November. After September, the economy seems almost to have gone over a cliff.

When available, the official data are likely to record a sharp slowdown in the second half of the year, possibly steep enough to drag full year growth in 2008/9 to below 7 percent. What's more, given the strongly recessionary conditions expected to prevail in the world economy in 2009, there is no prospect of a quick turnaround in India. Indeed, on a tentative basis.

What about economic policy? Can we not deploy monetary, fiscal and exchange rate policies to insulate our
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growth momentum from adverse external conditions? The short answer is: only to a limited degree. I outlined the main arguments last fortnight (BS, November 27).

Monetary policy had already been aggressively loosened by early November and the RBI provided a further, wellbalanced package last Saturday, notably including a 1 percent cut in the repo and reverse repo rates.

Given the continued high rate of CPI inflation through October (latest data) and, perhaps more significantly, recent pressures on the exchange rate, the present scope for further policy rate reductions appears limited.

The situation might change if external imbalances improve if a falling oil import bill and slowing non-oil imports outweigh the drop in export earnings and if capital flows stabilize.

On the fiscal front, the government had pretty much exhausted the available fiscal space through its record Rs 237,000 crore (4.5 percent of GDP) supplementary demand in October. Though undertaken for quite different reasons, its timing may turn out to be quite fortunate.
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Against this background the government was wise to limit last Sunday's "fiscal stimulus" to a modest affair, totaling only about Rs 30,000 crore (Rs 300 billion), out of which two-thirds was for "additional plan expenditure", which may not be fully spent this fiscal year.

It may be far more important to actually spend the already budgeted plan expenditure effectively. If international oil and fertilizer prices stay at present levels, implying low or negligible subsidy rates (looking ahead) on price-controlled domestic sales, then there may be a case for a larger stimulus next year. Much will depend on the trajectory of revenues and other expenditures in a slowing economy.

While such unprecedented monetary loosening and massive supplementary expenditures will definitely help, they will not fully neutralize the negative impact of the severe global financial and economic crisis on India's exports, investment and consumption. With over 60 percent of global GDP having toppled into recession, a significant deceleration of India's economic growth is simply unavoidable. After all, we share the same planet as America, Europe and Japan (and a rapidly slowing China).
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In this context a 6 percent economic growth in 2009/10 will be pretty good...if we achieve it.

CONSUMER ATTITUDES DURING RECESSION

During recessionary periods, individuals aren't able to spend as much money on high-tech gadgets or big-ticket items, such as cars or high end electronics; instead, people tend to put their dollars toward necessities, such as food or utilities.

In addition, according to a McGraw-Hill study of advertising performance, companies that can afford to advertise will win consumers at the local markets, regardless of brand name recognition pre-recession, making them strong contenders for your portfolio.

According to a McGraw-Hill study of advertising performance, "business-to-business firms that maintained or increased their advertising expenditures during the 1981-82 recession averaged significantly higher sales growth both during the recession and for the following three years than those that eliminated or decreased advertising".

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In addition, Market Sense compared 101 household name brands during the recessionary period 1989-1991 are as follows :-

Jell-O, Crisco, Hellman's, Green Giant and Doritos saw sales drop by as much as 26-64%.

Jiff peanut butter raised ad support and sales went up 57%.

Kraft salad dressings saw a rise of 70%.

In the beer category, overall spending was down 1% while Bud Light and Coors Light, each spending ahead of the category, saw sales increases of 15% and 16% respectfully.

Pizza Hut sales rose 61% and Taco Bell's 40% thanks to strong advertising support, with McDonald's volume down approximately 28%.

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WHAT CAUSES IT?

An economy which grows over a period of time tends to slow down the growth as a part of the normal economic cycle. An economy typically expands for 6-10 years and tends to go into a recession for about six months to 2 years.

A recession normally takes place when consumers lose confidence in the growth of the economy and spend less.

This leads to a decreased demand for goods and services, which in turn leads to a decrease in production, lay-offs and a sharp rise in unemployment.

Investors spend less as they fear stocks values will fall and thus stock markets fall on negative sentiment.

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STOCK MARKETS & RECESSION

The economy and the stock market are closely related. The stock markets reflect the buoyancy of the economy. In the US, a recession is yet to be declared by the Bureau of Economic Analysis, but investors are a worried lot. The Indian stock markets also crashed due to a slowdown in the US economy.

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.

IMPACT OF A US RECESSION ON INDIA

A slowdown in the US economy is bad news for 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.
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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.

Between January 2001 and December 2002, the Dow Jones Industrial Average went down by 22.7 per cent, while the Sensex fell by 14.6 per cent. If the fall from the record highs reached is taken, the DJIA was down 30 per cent in December 2002 from the highs it hit in January 2000. In contrast, the Sensex was down 45 percent.

The whole of Asia would be hit by a recession as it depends on the US economy. Asia is yet to totally decouple itself (or be independent) from the rest of the world, say experts.

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WHAT HAS HIT INDIA ?

Drop in global prices of tradable has reduced profitability of local producers of these goods, and the viability of their investment projects.

Most firms were betting on INR appreciation; the sudden INR depreciation has given losses.

• Watching the global crisis has led to a loss of confidence. • Wealth effects owing • India was a net importer of $92 billion of commodities in 2007-08 – so the global drop in commodity prices helps. • Wealth effects on real estate and equities partially offset by the rise in gold prices.

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MEASURES TO TACKLE 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. • 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. • The oil prices decline will also have a positive impact on the importers.

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DATA ANALYSIS AND INTERPRETATIONS

Due to the crisis, 11 more million people in East Asia and the Pacific will be in poverty in 2009 (Millions)

This graph uses vertical bars that span the entire layer, to indicate periods of recession.

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This graph shows the unemployment rate of civilians.

The slope of that line is definitely scary. If jobs keep being lost at that rate for the next quarter I’d guess we’re in for a whole lot of trouble.

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CONCLUSIONS AND SUGGESTIONS
CONCLUSIONS
• According to me there was a little bit impact of recession on India.

• Mostly the IT industries in India suffer a lot.

• According to the study there was very little impact of US recession on India.

• According to the study it is clear that there are certain measures that can be used to control recession.

• According to the study it is shown that during the time of recession the consumer’s lose their confidence and started to spend less.

• During recession the main problem was the unemployment and many of the employees were sacked.

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During recession Investors also spend less in the industries and this was also one of the main problems faced by various industries like IT industries, etc.

During recession there was inflation in the prices of most of the products and services.

During recession the IT industries were not getting projects to work and therefore they suffered a lot due to recession.

• Because of recession in US there was a little impact on India also but the condition was not worst like that in US.

• According to the study there was the impact of recession on whole Asia as it depends on the US economy and is yet to be independent from rest of the world.

During recession because of the slowdown in the US economy the Outsourcing industries of India suffers a lot as the Indian companies have the major outsourcing deals from the US.

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SUGGESTIONS
• Government should try to create more employment opportunities. • Government should try to spend more to boost the manufacturing sectors in the country. • To overcome recession Government should try increase export as compared to the previous or initial export. • Government should cut taxes during slump as it helps to some extent to overcome recession.

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BIBLIOGRAPHY
http://www.google.com http://www.scribd.com http://www.wikipedia.com http://www.rediffmail.com http://www.investopedia.com http://www.investorwords.com

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