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The Economic Downturn and India

India is not de-linked from the world, and the financial meltdown has certainly
impacted us. In the age of globalization, no country can remains isolated from t
he fluctuations of world economy. Heavy losses suffered by major International B
anks is going to affect all countries of the world as these financial institutes
have their investment interest in almost all countries.
As of now India is facing heat on three grounds: (1) Our Share Markets are falli
ng everyday, (2) Rupee is weakening against dollars and (3) Our banks are facing
severe cash crunch resulting in shortage of liquidity in the market.
Actually all the above three problems are interconnected and have their roots in
the above-mentioned global crisis. For the last two years, our stock market was
creating new summits which was mainly due to heavy investments by Foreign Insti
tutional Investors (FIIs). However, when the parent companies of these investors
(based mainly in US and Europe) found themselves in a severe credit tumult as a
result of sub-prime mess, the only option left with these investors was to with
draw their money from Indian Stock Markets to meet liabilities at home. FIIs wer
e the main buyers of Indian Stocks and their exit from the market is certain to
wreak havoc in the market. FIIs who were on a buying spree last year, are now
in the mood of selling their stocks in India. As a result our Share Markets were
touching new lows everyday.
Since, the money, which FIIs get after selling their stocks, needs to be convert
ed into dollars before they can sent it home, the demand for dollars suddenly in
creased. As more and more FIIs are buying dollars, the rupee is loosing its stre
ngth against dollar. As long as demands for dollars remain high, the rupee will
keep loosing its strength against dollar.
The current financial crisis has also started directly affecting Indian Industri
es. For the past few years, the two most preferred method of raising money by th
e companies were Stock Markets and external borrowings on low interest rates. St
ock Markets were falling everyday and it was not possible to raise money there.
Regarding external borrowing from world markets, this option has also become dif
ficult.
In the last fiscal year alone, India borrowed $29 billion from foreign lenders a
nd got $34 billion of foreign direct investment. A global recession has hurt ext
ernal demand. International lenders who have become extremely risk aversive can
limit access to international capital. If that happens, both India's financial m
arkets and the real economy will be hurt in the process. Suddenly, the 9% growth
target does not seem that 'doable' any more; we should be happy to clock 7% thi
s fiscal year and the next.
However, one positive point in favor of India is the fact that Indian Banks are
more or less secured from the ill-effects of sub-prime mess. A glance at Indian
banks' balance sheets would show that their exposure to complex instruments like
CDOs is almost nil. In India, still the major banking operations are in the han
ds of Public Sector Banks who exercise extreme cautions in disbursing loans to n
eedy people/companies. As a result, we are not likely to see a repeat of sub-pri
me crisis in India. Though there have been a presence of big US/European Banks i
n India and even some Indian banks (like ICICI) have some foreign subsidiary wit
h stake in the sub-prime losses, there presence is much small as compare to the
overall size of Indian banking industry. So at least on this major front we need
not worry much.
However, a global depression is likely to result in a fall in demand of all type
s of consumer goods. In 2007-08, India sold 13.5% of its goods to foreign buyers
. A fall in demand is likely to affect the growth rate this year. Our export may
get affected badly.
A negative atmosphere, shortage of cash, fall in demands, reducing growth rate a
nd uncertainties in the market are some of the most visible aspects of an econom
ic depression. What started as a small matter of sub-prime loan defaulters has n
ow become a subject of global discussion and has engulfed the global economy sce
nario.
And again, there is certainly a deep recession as far as jobs for the highly edu
cated are concerned. Ironically, this may be the first time in India's history w
hen it is more difficult for the professional graduates to find employment or ap
propriate employment, compared to the less educated millions. The present job re
cession has also hit the aspiration level of the Indian youth. The myth of IT an
d the glamour if private jobs are all history now. Now in an age of pink slips a
nd mounting recession, the Indian Youth is once again looking in public sectors
for jobs.
An Opportunity in Disguise
With every dark cloud comes a silver lining. This recession as a huge opportuni
ty for India to rebuild itself in the eyes of the world: Some of the Opportuniti
es are
* Dropping commodity prices, like steel and cement, ensure that construction cos
ts are sure to go down. This should definitely help in making infrastructure and
construction more viable
* Crude prices are falling, and this means that if the prices of petrol and dies
el are cut in India, we could see a drop in inflation as well
* There is a distinct Indian middle class which is growing to be a powerful spen
ding force. Indian companies who have focused on the west can now focus inwards,
hence contributing to productivity and prosperity.
* Recession is a great time to undo the mistakes of the past. The costs of land
will fall, and industries can acquire large chunks for industrialization. Costs
of imported coal will stabilize, and Indian power companies can generate much mo
re. The supply crunch in various commodities is likely to get eased over the nex
t few month.
* Elections were on the way. So the Approvals for power plants and infra project
s are likely to be speeded up. This influx of money into the economy is likely t
o have a multiplier effect on the economy
* Global M&A: Indian companies can acquire companies worldwide very cheap, and t
urn them around using Indian marwari and bania management philosophies. By the t
ime the cycle turns, India can be at the head of the pack
* New avenues: Green is a new $50 billion opportunity. Recession always makes in
dustries look for new ways to make money. Green will definitely get on top of th
e priority list for several companies, and that will help the country (likely to
be the third biggest polluter by the end of this year)
* Repatriation: Indians across the world will sense the building of a new story.
Talent will come back to India. They will grow in hundreds of our new futuristi
c communities and SEZs. New and cultured India will bloom
The 3 N's: Nuclear power, Narendra Modi and the Nano - All three will bloom over
the next two years, changing the face of India along with them. Despite all thi
s, growth might slow down. India should cash on these opportunities for better g
rowth and development. However, we should view this as an opportunity to build o
ur base, such that when the economy turns, we would be in a position to really b
e then next China
Marketing Strategies to Battle the Recession
The fear of a recession looms over the United States. And as the obvious remark
goes, whenever the US sneezes, the world catches a cold. This is evident from th
e way the Indian markets crashed taking a cue from a probable recession in the U
S and a global economic slowdown. Weakening of the American economy is bad news,
not just for India, but for the rest of the world too. With new uncertainties r
aised by the attacks and many economists forecasting a deep and prolonged recess
ion, businesses will have to do everything within their power to brace for the c
oming storm and survive the bad times
* Focus on core business
All companies should focus on their core competencies during turbulent economic
times. Companies who did diversify and split focus away from their core competen
cies often struggled to manage their unrelated businesses whereas companies that
remained focused, or re-focused on their core created opportunities to gain mar
ket share more easily from their competitors.
* Improved process and efficiency
A common theme among the companies is the process by which they implemented thei
r strategy during recessions. It is logical that process efficiencies will be so
ught to trim costs from budgets during a recession. All the companies should ha
ve the flexibility and must be fast action oriented as these are the key to surv
iving and prospering during recession. Flexibility will allow the business to im
plement their recession strategies quicker than competitors. In some cases horiz
ontal management structures will also directly attribute to the speed with whic
h companies were able to integrate acquired businesses successfully.
* Strategic divestment
Most companies should divest parts of their business during recessionary periods
. At face value these divestments will be a part of a strategy of cutting costs
and/or generating short term liquidity, particularly where less profitable divi
sions were divested. For the companies, divestment is primarily used to raise ca
sh to service debt and fund further investment. However it is important to note
that most divestitures to be made must be of divisions that are not in-line with
the company's long term strategic view, or differed from the company's core-bus
iness.
* Contingency planning
Companies should actively plan alternative strategies for adverse times well in
advance of them occurring. This is important as it demonstrates it is never too
late to act, as these companies will survive turbulent times despite having no s
pecific plan for the recession. However, in all cases when the downturn hit, the
companies quickly assembled a plan and put in place a strategy for dealing with
adverse conditions.
* Acquisitions and strategic alliances
There are several reasons why acquisition of competing or allied businesses is s
een as a good strategy by some companies in a period of economic downturn. The '
entry price' is likely to be lower than at other times as businesses are sold un
der stress or to liquidate assets. This means that companies can purchase target
s that may otherwise have been out of their reach. There may also be less compet
ition for acquisition targets because few companies make available the resources
to make acquisitions during periods of economic stress. Sometimes businesses be
come available for acquisition, that have previously been unattainable, as they
struggle to deal with a downturn.
* Increased advertising and marketing
One of the biggest mistakes business owners make during periods of economic slow
down is to cut back on marketing and advertising, doing this could be most detri
mental to their business .Advertising was used effectively by these companies to
help weather downturns and strengthen demand for their core products. Instead,
the marketing needs to be more aggressive and more comprehensive than ever. One
should start by contacting past clients and simply touching base. Chances are a
good number of them will have projects or assignments for which the company's se
rvices may be required.
* Research and development
The companies should use R&D to meet the increasingly diverse needs of their rec
essionary customers who seek greater value from their spending. Most companies s
hould also try to increase their speed to market with new products to gain advan
tage over their competition. They must do this by prioritising development of th
e most promising products that met the immediate needs of their customers.
* Human Factor
Finally, make sure that one have the right folks for the job. As much as possi
ble, the company should get everybody in the team to think lean. Extravagance be
comes a luxury, and one can't simply splash advertisements ad infinitum like the
re is no tomorrow.
One should be constantly re-evaluating not just the marketing plan, but all of t
he business strategies including policies, pricing, and employee performance. Th
e idea is to eventually be as efficient and effective as possible so the company
runs smoothly and profitably. Companies should look closely at the competitors.
Talking to business leaders will also help. Experiment. Solicit feedback from t
he workers and customers. By doing several of these things one will accumulate
a wealth of knowledge and experience crucial to the survival of your business.
Conclusion
In the globalized market scenario, the impact of recession at one place/ industr
y/ sector percolate down to all the linked industry and this can be truly interp
reted from the current market situation which is faced by the world. Whether a g
lobal recession occurs or not, there will be people whose businesses go under si
mply because of the speculation about a recession. It's incredibly sad but it's
a fact and it's happened all throughout history whenever the economy has faltere
d. These recession strategies won't turn the business around when used independe
ntly, but if we combine several of them, they can help to transform one's outloo
k for the future. This recession have turned down the growth process and have se
t the minds of many for finding out the real solution to sustain the economic gr
owth and stability of the market which is desired for the smooth running of the
economy.