A STUDY ON THE IMPACT OF GLOBAL RECCESION ON INDIAN ECONOMY

Submitted in the partial fulfilment of the requirements for the award of the degree of Bachelors of commerce (2009-2012)

Guided by: Mr. Padmeshwar doley Head of department: Mrs. Snehlata gupta

Submitted by: Shalini B.com (H) 3rd Roll No. 220

YEAR

SHRI RAM COLLGE OF COMMERCE DELHI UNIVERSITY

DECLARATION

This is to certify that the project entitled THE STUDY OF IMPACT OF GLOBAL RECESSION ON INDIAN ECONOMY done by Ms. Shalini VImal is an authentic work carried out by her under my guidance. The matter embodied in this project work has not been submitted earlier for the award of any degree or diploma to the best of my knowledge and belief.

Mr. PADMESHWAR DOLEY Project Supervisor

ACKNOWLEDGEMENT

Preparing a project of this type is a knowledgeable task and I am fortunate enough to get support from a large number of persons to whom I shall remain grateful. First and foremost, I express my profound towards my revered guide Mr. Padmeshwar doley for her constant guidance, timely help, valuable advice and encouragement . I would also like to thank faculty members of college for providing me different facilities at campus and for providing support whenever required. And last but not the least I thank all my friends for being a strong support at the time of need.

Shalini Vimal B.Com(H) Roll NO. 220

EXECUTIVE SUMMARY

The fear of a recession looms over the United States. And as the clich goes, whenever the US sneezes, the world catches a cold. 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. Weakening of the American economy is bad news, not just for India, but for the rest of the world too. A Recession is a contraction phase of the business cycle. The official agency in charge of declaring that the economy is in a state of recession is the National Bureau of Economic Research (NBER). They define recession as a "significant decline in economic activity lasting more than a few months, which is normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. For this reason, the official designation of recession may not come until after we are in a recession for six months or even longer. Some economists also suggest that a recession occurs when the natural growth rate in GDP is less than the average of 2%. Typically, a normal economic recession lasts for approximately 1 year.

American newspapers often quote the rule of thumb that a recession occurs when real gross domestic product (GDP) growth is negative for two or more consecutive quarters. This measure fails to register several official (NBER defined) US recessions.

This project aims at understanding the concept of recession, how it all started and what follows next? In this report the impact of the global meltdown on various industries as well as on individuals has been studied with respect to India, a developing nation.
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TABLE OF CONTENTS

CHAPTER NO. DECLARATION

TITLE

PAGE NO. 2 3 4 7 8

ACKNOWLEDGEMENT EXECUTIVE SUMMARY 1 INTRODUCTION 1.1 RECESSION 1.1.1 ATTRIBUTES 1.1.2 CAUSES OF RECESSION 1.1.3 RESPONDING TO A RECESSION 1.2 US RECESSION 1.2.1 CAUSES OF US RECESSION 1.2.2 CRISIS IN THE US 1.2.3 LIQUIDITY CRISIS 1.3 REASONS FOR GLOBAL RECESSION 1.4 MONEY MARKET 1.5 SUB PRIME CRISIS 1.6 SUB PRIME LOAN 1.7 LEHMAN BROTHERS CASE 2 IMPACT ON INDIA 2.1 IMPACT ON STEEL INDUSTRY 2.2 IMPACT ON REAL ESTATE 2.3 IMPACT ON CAR INDUSTRY 2.4 IMPACT ON TOURISM INDUSTRY 2.6 IMPACT ON TEXTILE INDUSTRY 2.7 IS INDIA FACING RECESSION 2.8 WHEN THE SITUATION WILL IMPROVE 3 CONCLUSIONS, SUGGESTIONS, LIMITAIONS 3.1 CONCLUSIONS 3.2 SUGGESTIONS
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3.3 LIMITATIONS BIBLIOGRAPHY

CHAPTER-1 INTRODUCTION

1. 1 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 country, 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."The NBER's Business Cycle Dating Committee is generally seen as the authority for dating US recessions. Academic economists, policy makers, and businesses all usually refer to recessions as determined by the NBER.

1.1.1 Attributes
In macroeconomics, a recession is a decline in a country's gross domestic product (GDP), or negative real economic growth, for two or more successive quarters of a year. Some economists prefer a more robust definition of a 1.5% rise in unemployment within 12 months. In a 1974 New York Times article, Julius Shiskin suggested several rules of thumb to identify a recession, which included two successive quarterly declines in gross domestic product (GDP). His other rules are usually ignored.

An alternative, 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 That private organization defines a recession more ambiguously as "a significant decline in economic activity spread across the economy, 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 as employment, investment, and corporate profits. A severe (GDP down by 10%) or prolonged (three or four years) recession is referred to as an economic depression, although some argue that their causes and cures can be different.

1.1.2 Causes
1. An economy which grows over a period of time tends to slow down the growth as a part of the normal economic cycle. 2. An economy typically expands for 6- 10 years and tends to go into a recession for about six months to 2 years. 3. A recession normally takes place when consumers lose confidence in the growth of the economy and spend less. 4. 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. 5. Investors spend less as they fear stocks values will fall and thus stock markets fall on negative sentiment.

1.1.3 Responding to a recession

Strategies for moving an economy out of a recession vary depending on which economic school the policymakers follow. While Keynesian economists may advocate deficit spending by the government to spark economic growth, 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. Both government and business have responses to recessions. In the Philadelphia Business Journal, Strategic Business adviser Carter Schelling has discussed precautions
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businesses take to prepare for looming recession, likening it to fire drill. First, he suggests that business owners gauge customers' ability to resist recession and redesign customer offerings accordingly. He goes on to suggest they use lean principles, replace unhappy workers with those more motivated, eager and highly competitive. Also over-communicate. "Companies," he says, "get better at what they do during bad times." He calls his program the "Recession Drill."

1.2 US RECESSION
1.2.1 Causes Of US Recession
The general consensus is that 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, interest rates, and inflation. When the Fed loses balance in this equation, the economy can spiral out of control, forcing it to correct itself. Relaxed policies in lending practices making it easy to borrow money. The economic activity became unsustainable resulting in the economy coming to a near halt. Recession can be caused by factors that stunt short term growth in the economy, such as spiking oil prices or war.

1.2.2 Crisis In The US

The United States entered 2008 during a housing market correction, a subprime mortgage crisis and a declining dollar value. In February, 63,000 jobs were lost, a 5-year record. In September, 159,000 jobs were lost, bringing the monthly average to 84,000 per month from January to September of 2008. On September 5, 2008, the United States

Department of Labour issued a report that its unemployment rate rose to 6.1%, the highest in five years. The defaults on sub-prime mortgages (home loan defaults) have led to a major crisis in the US. Sub-prime is a high risk debt offered to people with poor credit worthiness or unstable incomes. Major banks have landed in trouble after people could not pay back loans. The housing market soared on the back of easy availability of loans. The realty sector boomed but could not sustain the momentum for long, and it collapsed under the gargantuan weight of
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crippling loan defaults Foreclosures spread like wildfire putting the US economy on shaky ground. This, coupled with rising oil prices at $100 a barrel, slowed down the growth of the economy.

1.2.3 Liquidity Crisis

In early July, depositors at the Los Angeles offices of IndyMac Bank frantically lined up in the street to withdraw their money. On July 11, IndyMac - the largest mortgage lender in the US was seized by federal regulators. The mortgage lender succumbed to the pressures of tighter credit, tumbling home prices and rising foreclosures. During the weekend of September 1314, Lehman Brothers declared bankruptcy after failing to find a buyer Bank of America agreed to purchase Merrill Lynch, the insurance company AIG sought a bridge loan from the Federal Reserve and a consortium of 10 banks created an emergency fund of at least $70 billion to deal with the effects of Lehman's closure . The biggest bank failure in history occurred on September 25 when JP Morgan Chase agreed to purchase the banking assets of Washington Mutual The year 2008 as of September 17 has seen 81 public corporations file for bankruptcy in the United States, already higher than the 78 in 2007. Lehman Brothers being the largest bankruptcy in U.S. history also makes 2008 a record year in terms of assets with Lehman's $691 billion in assets all past annual totals. The year also saw the ninth biggest bankruptcy with the failure of IndyMac Bank. On September 29, Citigroup beat out Wells Fargo to acquire the ailing Wachovia's assets will pay $1 a share, or about $2.2 billion.

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In addition, the FDIC said that the agency would absorb the company's losses above $42 billion; in exchange they would receive $12 billion in preferred stock and warrants from Citigroup in return for assuming that risk.

1.3 Reasons for Global Recession

These days the most talked about news is the current financial crisis that has engulfed the world economy. Every day the main headline of all newspapers is about our falling share markets, decreasing industrial growth and the overall negative mood of the economy. For many people an economic depression has already arrived whereas for some it is just round the corner. In my opinion the depression has already arrived and it has started showing its effect on India. So what has caused this major economic upheaval in the world? What is the cause of falling share markets the world over and bankruptcy of major banks? In this article, I shall try to explain the reasons for recent economic depression for all those who find it difficult to understand the complex economics lingo and are looking for a simple explanation.

In order to understand what is now happening in the world economy, we need to go a little back in past and understand what was happening in the housing sector of America for past many years. In US, a boom in the housing sector was driving the economy to a new level. A combination of low interest rates and large inflows of foreign funds helped to create easy credit conditions where it became quite easy for people to take home loans. As more and more people took home loans, the demands for property increased and fuelled the home prices further. As there was enough money to lend to potential borrowers, the loan agencies started to widen their loan disbursement reach and relaxed the loan conditions. The loan agents were asked to find more potential home buyers in lieu of huge bonus and incentives. Since it was a good time and property prices were soaring, the only aim of most lending institutions and mortgage firms was to give loans to as many potential customers as possible. Since almost everybody was driving by the greed factor during that housing boom period, the common sense practice of checking the customers repaying capacity was also ignored in many cases. As a result, many people with low income & bad
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credit history or those who come under the NINJA (No Income, No Job, No Assets) category were given housing loans in disregard to all principles of financial prudence. These types of loans were known as sub-prime loans as those were are not part of prime loan market (as the repaying capacity of the borrowers was doubtful). Since the demands for homes were at an all time high, many homeowners used the increased property value to refinance their homes with lower interest rates and take out second mortgages against the added value (of home) to use the funds for consumer spending. The lending companies also lured the borrowers with attractive loan conditions where for an initial period the interest rates were low known as adjustable rate mortgage (ARM). However, despite knowing that the interest rates would increase after an initial period, many sub-prime borrowers opted for them in the hope that as a result of soaring housing prices they would be able to quickly refinance at more favourable terms.

Bubble that burst

However, as the saying goes, No boom lasts forever, the housing bubble was to burst eventually. Overbuilding of houses during the boom period finally led to a surplus inventory of homes, causing home prices to decline beginning from the summer of 2006. Once housing prices started depreciating in many parts of the U.S., refinancing became more difficult. Home owners, who were expecting to get a refinance on the basis of increased home prices, found themselves unable to re-finance and began to default on loans as their loans reset to higher interest rates and payment amounts. In the US, an estimated 8.8 million homeowners - nearly 10.8% of total homeowners had zero or negative equity as of March 2008, meaning their homes are worth less than their mortgage. This provided an incentive to walk away from the home than to pay the mortgage. Foreclosures ( i.e. the legal proceedings initiated by a creditor to repossess the property for loan that is in default ) accelerated in the United States in late 2006. During 2007, nearly 1.3 million U.S. housing properties were subject to foreclosure activity. Increasing foreclosure rates and unwillingness of many homeowners to sell their homes at reduced
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market prices significantly increased the supply of housing inventory available. Sales volume (units) of new homes dropped by 26.4% in 2007 as compare to 2006. Further, a record nearly four million unsold existing homes were for sale including nearly 2.9 million that were vacant. This excess supply of home inventory placed significant downward pressure on prices. As prices declined, more homeowners were at risk of default and foreclosure. Now you must be wondering how this housing boom and its subsequent decline is related to current economic depression? After all it appears to be a local problem of America.

What complicated the matter?

Unfortunately, this problem was not as straightforward as it appears. Had it remained a matter between the lenders (who disbursed risky loans) and unreliable borrowers (who took loans and then got defaulted) then probably it would remain a local problem of America. However, this was not the case. Let us understand what complicated the problem. For original lenders these subprime loans were very lucrative part of their investment portfolio as they were expected to yield a very high return in view of the increasing home prices. Since, the interest rate charged on subprime loans was about 2% higher than the interest on prime loans (owing to their risky nature); lenders were confidant that they would get a handsome return on their investment. In case a sub-prime borrower continued to pay his loans installment, the lender would get higher interest on the loans. And in case a sub-prime borrower could not pay his loan and defaulted, the lender would have the option to sell his home (on a high market price) and recovered his loan amount. In both the situations the Subprime loans were excellent investment options as long as the housing market was booming. Just at this point, the things started complicating. With stock markets booming and the system flush with liquidity, many big fund investors like hedge funds and mutual funds saw subprime loan portfolios as attractive investment opportunities. Hence, they bought such portfolios from the original lenders. This in turn meant the lenders had fresh funds to lend. The subprime loan market thus became a fast growing segment. Major (American and European) investment banks and institutions heavily bought these loans (known as Mortgage Backed Securities, MBS) to diversify their
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investment portfolios. Most of these loans were brought as parts of CDOs (Collateralized Debt Obligations). CDOs are just like mutual funds with two significant differences. First unlike mutual funds, in CDOs all investors do not assume the risk equally and each participatory group has different risk profiles. Secondly, in contrast to mutual funds which normally buy shares and bonds, CDOs usually buy securities that are backed by loans (just like the MBS of subprime loans.) Owing to heavy buying of Mortgage Backed Securities (MBS) of subprime loans by major American and European Banks, the problem, which was to remain within the confines of US propagated into the words financial markets. Ideally, the MBS were a very attractive option as long as home prices were soaring in US. However, when the home prices started declining, the attractive investments in Subprime loans become risky and unprofitable. As the home prices started declining in the US, sub-prime borrowers found themselves in a messy situation. Their house prices were decreasing and the loan interest on these houses was soaring. As they could not manage a second mortgage on their home, it became very difficult for them to pay the higher interest rate. As a result many of them opted to default on their home loans and vacated the house. However, as the home prices were falling rapidly, the lending companies, which were hoping to sell them and recover the loan amount, found them in a situation where loan amount exceeded the total cost of the house. Eventually, there remained no option but to write off losses on these loans. The problem got worsened as the Mortgage Backed Securities (MBS), which by that time had become parts of CDOs of giant investments banks of US & Europe, lost their value. Falling prices of CDOs dented banks investment portfolios and these losses destroyed banks capital. The complexity of these instruments and their wide spread to major International banks created a situation where no one was too sure either about how big these losses were or which banks had been hit the hardest.

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1.4 Money market

Money Market is actually an inter-bank market where banks borrow and lend money among themselves to meet short-term need for funds. Banks usually never hold the exact amount of cash that they need to disburse as credit. The inter-bank market performs this critical role of bringing cash-surplus and cash-deficit banks together and lubricates the process of credit delivery to companies (for working capital and capacity creation) and consumers (for buying cars, white goods etc). As the housing loan crisis intensified, banks grew increasingly suspicious about each others solvency and ability to honour commitments. The inter-bank market shrank as a result and this began to hurt the flow of funds to the real economy. Panic begets panic and as the loan market went into a tailspin, it sucked other markets into its centrifuge. The liquidity crunch in the banks has resulted in a tight situation where it has become extremely difficult even for top companies to take loans for their needs. A sense of disbelief and extreme precaution is prevailing in the banking sectors. The global investment community has become extremely risk-averse. They are pulling out of assets that are even remotely considered risky and buying things traditionally considered safe-gold, government bonds and bank deposits (in banks that are still considered solvent). As such this financial crisis is the culmination of the above mentioned problems in the global banking system. Inter-bank markets across the world have frozen over. The meltdown in stock markets across the world is a victim of this contagion. Governments and central banks (like Fed in US) are trying every trick in the book to stabilize the markets. They have pumped hundreds of billions of dollars into their money markets to try and unfreeze their inter-bank and credit markets. Large financial entities have
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been nationalized. The US government has set aside $700 billion to buy the toxic assets like CDOs that sparked off the crisis. Central banks have got together to co-ordinate cuts in interest rates. None of this has stabilized the global markets so far. However, it is hoped that proper monitoring and controlling of the money market will eventually control the situation.

1.5 Sub Prime Crisis

The current upheaval in the global financial markets has caused more mayhem in a fortnight than the world has seen in its entire economic history. Although there are many reasons responsible for bringing the world to the doorstep of financial doom, the main cause of this financial disaster is said to be the sub-prime loan.' So what is this sub-prime loan? And why has it caused global panic? If it is related to the American housing sector, why should it affect Indian and other markets?

1.6 Sub-prime loan

Sub-prime mortgage loans (or housing loans or junk loans) are very risky. But since profits are high where the risk is high, a lot of lenders get into this business to try and make a quick buck. Sub-prime loans are dicey as they are given to people with unstable incomes or low creditworthiness. These individuals are not financially sound enough to be given a loan when judged under the strict standards that should normally be followed by a bank or lending institution. However, there's more to it. Let us simplify this issue to understand better how subprime loans work and how they brought the world down to its knees.

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1.7 Lehman Brothers a victim of US subprime crisis

New York: The crisis of confidence that first hit home prices, then mortgage investments that financed the housing boom, has now claimed two of Wall Street's most venerable names - Lehman Brothers who declared bankruptcy and Merrill Lynch which sold itself to Bank Of America - both occurring under Washington's watchful eye. Big stock brokers and the decision makers in Washington said that they were working to reduce disruptions and minimise the impact of these financial market developments on the broader economy. Lehman employees who had already taken heavy losses on company stock, were stunned. "On Friday coming out of the office everyone thought that it would be okay, something will work out in the end," said a Lehman employee. But in the end, the Treasury Secretary Henry Paulson refused to use taxpayer money to support Lehman, as he had for the buyout of Bear Stearns and for Fannie Mae and Freddie Mac just last week. The line was drawn at Lehman's door. Merrill Lynch - the nation's biggest brokerage firm - fearing it could be next, agreed to be bought for $50 billion by Bank of America. But on Wall Street the crisis of confidence sent stocks sinking and threatened yet another financial giant, the US' largest insurance company AIG. To help, New York Governor David Paterson said he would allow AIG to borrow from its own assets. "No taxpayer dollars are involved. This is not a Government buy out," he clarified. It's the biggest Wall Street collapse in nine years after two of America's iconic banks fell. Lehman Brothers went bust and Merrill Lynch sold out. The question that everyone is

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asking now is whether the credit crisis will take the global markets into a further tailspin and what does this mean to the investor? The Lehman bankruptcy and acquisition of Merril-Lynch meant Wall Street had its worst day since September 11 2001. Stocks of financial services companies' plummeted, leading to the some of the biggest single day drops in seven years. The Dow Jones industrial average took the biggest hit, falling more than 500 points and NASDAQ dropped over 80 points while Standard & Poor's 500 index fell by 59 points. In Europe too the impact was evident. The London Stock Exchange's FTSE dropped by over 210 points. Shares of Wall Street firms such as Goldman Sachs and Morgan Stanley also slid amid concerns that their business models are similar to those of Lehman Brothers and Bear Stearns. A sharp slide in oil prices to below $100 a barrel helped cap the stock market's losses a bit by boosting airlines and retailers, which are particularly sensitive to higher fuel costs, analysts said. US crude fell $5.47 to settle at $95.71 a barrel on the New York Mercantile Exchange.

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CHAPTER-2 IMPACT ON INDIA

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2.1 Impact on India

In the age of globalization, no country can remains isolated from the fluctuations of world economy. Heavy losses suffered by major International Banks 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 falling everyday, (2) Rupee is weakening against dollars and (3) Our banks are facing severe crash 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 touching new heights thanks to heavy investments by Foreign Institutional Investors (FIIs). However, when the parent companies of these investors (based mainly in US and Europe) found themselves in a severe credit crunch as a result of sub-prime mess, the only option left with these investors was to withdraw their money from Indian Stock Markets to meet liabilities at home. FIIs were 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 are touching new lows everyday. Since, the money, which FIIs get after selling their stocks, needs to be converted into dollars before they can sent it home, the demands for dollars has suddenly increased. As more and more FIIs are buying dollars, the rupee is loosing its strength 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 Industries. For the past few years, the two most preferred method of raising money by the companies were Stock Markets and external borrowings on low interest rates. Stock Markets are bleeding everyday

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and it is not possible to raise money there. Regarding external borrowing from world markets, this option has also become difficult. In the last fiscal year alone, India borrowed $29 billion from foreign lenders and got $34 billion of foreign direct investment. A global recession has hurt external demand. International lenders who have become extremely risk aversive can limit access to international capital. If that happens, both Indias financial markets 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% this fiscal year and the next. However, one positive point in favour 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 hands of Public Sector Banks who exercise extreme cautions in disbursing loans to needy people/companies. As a result, we are not likely to see a repeat of sub-prime crisis in India. Though there have been a presence of big US/European Banks in India and even some Indian banks (like ICICI) have some foreign subsidiary with stake in the sub-prime losses, there presence is miniscule 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 types 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 and uncertainties in the market are some of the most visible aspects of an economic depression. What started as a small matter of sub-prime loan defaulters has now become a subject of global discussion and has engulfed the global economy scenario. Following is the impact of recession on the various industries of India:

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2.1 Impact on Steel Industry

The iron and steel industry had a very good time in the last few years because of high economic growth in India and other developing countries. Because of unusually high demand from China, prices of steel and all raw materials required for steelmaking shot up to unrealistic and unsustainable levels. Based upon huge reserves of iron ore (about 20 billion tonnes) in India, many major steel producers in the world proposed to set up large integrated steel plants here, and almost all existing steelmakers in the country planned for expansion. This led everyone to believe that the target of 110 mt of steel production by 2020 could be achieved much earlier, by 2012.

Only a few months ago, steel was considered as one of the factors contributing to inflation. However, with the recession in global economy, prices of steel and its principal raw materials have fallen sharply. Export price for iron ore fines in spot market has dropped from $147 in March 08 to $55 in March09. Prices of imported hard coking coal have come down from $305 in 2008-09 to about $130 in 2009-10. Higher prices of steel were attributed to higher prices of iron ore and imported coal.

The expectation now is that prices of steel should come down. However, the relationship between steel prices and the cost of raw materials is a little more complex; it is not linear. Steel prices were mostly market-driven and cost of inputs in the Indian context was not the determining factor for price of steel. Let us see how.

In the first place, the cost of steel was market-driven. The international demand was huge. Then, all major steel producers had assured ore-supply arrangements that shielded them from market volatility. SAIL and TATA steel, two major steel producers in the country, have their own captive mines, and increase in raw material prices in open market has little or no impact on their operations.

NMDC, a PSU under the ministry of steel, meets full requirement of iron ore of other major steel producers like RINL, ESSAR Steel and Ispat Industries and 40-50% of JSW steel on long term prices, valid for one year. Therefore, all major steel producers in the country were largely unaffected by abnormally high volatility in iron ore prices in spot market that primarily catered to
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the

demand

from

China.

Reduction in the demand from China, as also Chinas dependence on Indian Iron ore has resulted in reduced exports from India and consequent drop in price. Long-term prices are determined based upon the provisions of long term supply agreement between NMDC and its customers, and were much below the spot market prices. These are revised once in a year while steel prices are revised frequently. It can, therefore, be seen that raw material prices had little bearing on the pricing of steel, in good times. But with the recession in the world economy and reduction in demand there is considerable pressure on pricing of steel. Steel producers may now opt for cost push pricing mechanism to push sales and keep the utilisation of created capacities high. Since iron ore is available in plenty in India and the raw material prices are much lower, there is a case for price-reduction of steel and passing on the benefit to consumers.

2.2 Impact on Real Estate

The development of real estate in India is attributed to the off-shoring and outsourcing businesses, such as high-end technology consultation, call centres and programming houses. The demand from the information technology sector has changed the urban landscape. Several multinational companies (MNCs) continue to move their organisational operations to India to take advantage of lower manpower and other costs. Providing human resources and home at their workplace assumes great significance and therefore, the requirement to create space for people to live and work that in turn, causes the development of other related infrastructure. It has been a predominant trend to set up the worlds best business centres, often campus-style establishments bearing a distinguishing corporate stamp. Some of these locations are so distinctive that they are termed as the temples of new India. It is just an indication of the extent to which the development of real estate has been taking place. The tremendous growth of the real estate sector is attributed to various fundamental factors such as growing economy, growing business needs etc. However, this boom is restricted to areas such as commercial office space, retail and housing sectors. The impending concerns of this sector namely skill shortage, non-availability of statistics, lack of low cost-affordable housing, lack of sustainability and to meet a future that might have downturn due to oversupply.

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The opportunities and issues of affordable, low cost housing in India are mainly related with tremendous shortfall of middle class housing as majority of the developers are involved in developing high class housing. So, there is a dearth of low cost affordable units. The negative version of Indian real estate industry is they have complete disrespect for sustainability and that the concept of green buildings, proper waste disposal methods and the longevity of the product are often dismissed.

Presently, the impact of recession in US economy has caused mammoth impact on Indian real estate market as well, as it is witnessing the recession. Till now, the real estate industry was a booming industry, which were in pace with information technology (IT) industry. Accordingly, the demand for IT space and commercial spaces has been grown. Also, the high net worth of individual investors has created a very fast pace of demand in Indian real estate sector, which has a very high impact image of investing in India.

As the money was coming in terms on investment in from non-resident Indians as well as private equity funds, the well-known developers and real estate players have grown their portfolio as well many small sized players have also created in Indian market. It has provided a very high supply of real estate segments either in residential or in commercial or in office space. Special economic zone (SEZ) has also creates a very good opportunities for investors as well as corporate to invest and get benefited from Indian real estate market. So, the booming market has created a niche as modern living and created a very mass employment in Indian segment. The recent changes, 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, Bank of America, has created a very fast drops/recession in financial industry and created a crisis in all over US economy. Both of these firms were invested their more part of funds into real estate sector without having the proper analysing or effect.

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2.3 Impact on Car Industry

Indian car industry is one of the most promising car industries across the globe. It has gradually strengthened its foothold in the international arena as well. The country is dealing with many car manufacturers, dealers, and associations in various different countries including U.S. From some countries, India imports cars and car components and to some India exports. With this, the global recession is obvious to have its impact on the Indian car industry. Though India has witnessed a growing customer base, it has not inoculated them from the global crisis. The crippling liquidity and high interest rates have slowed down the vehicle demand. However, the falldown started in July with a decline of 1.9% and thereafter the industry saw a major slowdown in October 2008. Business Analysts reported that Indian car market had recorded a continuous growth of about 17.2% over the last few years but this year the recession has brought the growth to about 7-8%. Be it Tata Motors or Maruti Suzuki or even Mercedes-Benz, the car market has gone down to a tremendously negative terrain. Tata has reported that its profit fell from 34.1 percent to 3.47 billion rupees because of the slower growth in the industrial production. Further, the company has also recorded a 20% decline in the sales as compared to last year. And with its Nano making a big impact before the downturn as such, but after the downturn may hold a bleak future for the world's cheapest car, because the consumer spending has gone very low.

Even Maruti Suzuki reported a 7% decline in sales due to rising cost of the materials and a falling rupee value. Even Mahindra & Mahindra, the India's largest SUV and tractor manufacturer, is not immunized, showing profit fall of 20.6%.

In the recent months, banks and car financers have disbursed the approved loan because of the cash crunch. Payments from the OEMs (Original Equipment Manufacturer) have also been delayed and in most cases banks have deferred or disbursed the approved loan. OEMs take this loan from banks and financers for establishments, capacity expansions, or even for the requirement of high-end equipments for car designing and production.

In addition, the uncertain exchange rate and a sudden increase in dollar value against Indian Rupee have contributed to the slowdown. Increasing dollar value has raised the landed cost of imported machine tools and even raw materials required for production by about 14%.
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Alloy and steel prices have also not shown any reduction in their prices and this high price has actually forced the car manufacturers to hike the car prices. To make the matter worse, it is believed that steel manufacturers across the country are looking for re-imposition of custom duty on steel. Increased cost of raw materials directly affects the cost of the car rolled out, eventually tagging a particular car model with a higher price tag.

The conclusion is that the present global recession has hit very hard on the Indian car industry.

2.4 Impact on Tourism Industry

Goa's international tourism inflow is likely to dwindle further with global meltdown continuing to impact the industry even in 2009. Experts feel that the international tourism will be 10 to 15 per cent less compared to last year. The year 2008 saw average 20 per cent less foreign tourists visiting this coastal state famed for its pristine beaches. "The year 2009 will be very difficult for the tourism industry because of the economic situation prevailing worldover," Platon Loizou, managing director, Jewel in the Crown holidays UK, told PTI. Loizou said that the year 2008 saw partial impact as people had booked packages six to nine months in advance. "This year, it will be bad because people will not prioritise the holiday on their spending list," he said. The impact has already started showing up as Monark, one of the largest chartered flight carrier, cancelled its once a week Goa operations from January 9 onwards. The operations will remain cancelled till April, this year, Loizou said. Monark had a capacity to carry 370 passengers a week which amounts to cancellation of around 5,000 seats, he said. "There are lots of Goans who live in England. They also are reluctant to plan their homeland visit as they think its not worth to leave their job and come here on a vacation," Loizou said. The UK contributes for the highest foreign tourist arrivals contributing for almost 50 per cent of the total chunk. "The situation will remain volatile even for this year. It will be dependent on whether world economy resurrects or remained poised at same position," Ralf de Souza, president, travel and tourism association of Goa, said. The TTAG is an umbrella organisation of the tour operators in the state. "When the other industries recover from the recession then only tourism will be in place. Holiday is not the priority," de Souza added.
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The state tourism industry, which has received severe setback last year, are working out modalities to augment its sagging prospects. "The tour operators will have to check what markets can be pulled in and also what we can do to salvage the industry," the TTGG president said. The industry also expects to increase its foray in the domestic market

encashing on the slashed airfares in the country. "Although world economy is in crisis, the Indian economy is still surviving its growth rate. We find that the domestic market has huge potential," de Souza stated. The state tourism ministry officials said that the attempts are on to woo more tourists here. "The season is bouncing back and we expect to pick up further," Lyndon Monteiro, officer on special duty to tourism ministry, said.

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2.5 Impact on Textile Industry

Financial meltdown has already started showing its impact on Indian Textile Industries. Many export orders are getting cancelled and labourers depending on this Industry are almost in the verge of loosing their livelihood. Over 90 percent units in the textile and clothing are in the SME sector, which is also the most labour intensive sector in our manufacturing industry as a whole. The entire textile value chain is currently undergoing a grave crisis. If this situation continues, lakhs of workers who earns their living through this industry will be pushed into BPL and its high time that the impact of recession on labour and livelihoods in textile and clothing sector in general and Handloom sector in particular should be discussed and necessary policies and practices should be put in place to prevent further damage. In this context, Centad co organized an interactive meeting with Confederation of Indian Textile Industry (CITI) to analyze the impact of recession on Indian Textile Industry on 2nd March 2009 in Shangri-La Hotel, Ashoka Road, New Delhi. The meeting was well attended by stakeholders from Industries, CSO, Policy makers and was highly interactive between the Ministry of Textiles, Ministry of Finance and Ministry of Commerce. This meeting provided a platform for the stakeholders to raise their concerns with Shri Arun Ramanathan, Finance Secretary, Shri G K Pillai, Commerce Secretary and other Govt. officials. The meeting was chaired by Smt. Rita Menon, Secretary, and Textiles. On this occasion, presentation was made by Kumar Gautam and Linu Mathew Philip on behalf of Centad with a special focus on Handloom Sector and also on overall issues faced by Textile Industry and provided policy suggestions like Trade safety schemes for rehabilitation of textile workers, differential treatment in credit, Infrastructure, raw material, technology sectors and to implement export linked credit safeguards to protect the interest of the textile workers.

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2.6 Is India really facing recession?

According to numbers published by Bureau of Economic Analysis in May 2008, the GDP growth of the previous two quarters was positive. As one common definition of a recession is negative economic growth for at least two Consecutive fiscal quarters, some analysts suggest this indicates that the U.S. Economy was not in a recession at the time. However this estimate has been disputed by some analysts who argue that if inflation is taken into account, the GDP growth was negative for the past two quarters, making it a technical recession. A study released by Moody's found two-thirds of the 381 largest metropolitan The study also said 28 states were in

areas in the United States were in a recession.

recession with 16 at risk. The findings were based on unemployment figures and industrial production data.

2.7 So when the situation will improve?

I believe in the spiritual mantra of This too will pass. This is not the first recession the world has ever seen and certainly this is not going to be the last. I think the need of the hour for individuals is to not loose hope and prepare themselves for future. Keep learning new things, improve your skills and above all dont loose heart. The best brains in the world are at work to find solution to this recession. Eventually, well find a cure. And even if nothing works, the greatest healer of all the time will subside this recession one day. For every problem under the Sun, there is a solution or is none, if there is one, try to find it, If there is none, never mind it. We all have a limited time span on this earth. A Recession, not matter how lengthy or worse it appears now, is a momentary phenomenon when compared on the global scale of our entire life time. Dont allow this momentary phenomenon to overshadow the wonderful days of happiness and wealth which will definitely come in your life in the days to come.

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CHAPTER-3 CONCLUSIONS, SUGGESTIONS, LIMITATIONS

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3.1 CONCLUSION:
By studying the whole project report, we can say that the India is also immune to the global recession. There is a impact on every industry may it be tourism, steel, real estate, money market, textile or any other. Hence everyone in India is also affected by the same & are really worried about what is happening. They all are taking different measures to control this situation like additional work, less expenditure etc. But then also we can see that India is still having positive growth rate which is a good indicator..

3.2 SUGGESTIONS:
1. RBI needs to neutralise the outflow of FII money by unwinding the market stabilisation securities that it had used to sterilise the inflows when they happened. 2. This will mean drawing down the dollar reserves which is important at this hour. 3. In the IT sector, there should be correction in salary offerings rather than job cutting. 4. Public should spend and save wisely. 5. Taxes including excise duty and custom duty should be reduced to lighten the adverse effect of economic crunch on various industries. 6. In real estate the builders should drop prices, so as to bring buyers back into the market. 7. Also, the government should try and improve liquidity, while CRR and SLR must be cut further. 8. Indian Companies have to adopt a multi-pronged strategy, which includes diversification of the export markets, improving internal efficiencies to maintain cost competitiveness in a tight export market situation.

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3.3 LIMITATIONS:
Though every effort was put in to make this report authentic in every sense, yet there were a few uncontrollable factors which might have had their influence on the final report. Limiting factors can be stated as under:1. Some consumers didnt have a serious attitude towards questionnaires and hence their responses may not reflect the real picture. 2. Some consumers were not candid enough to reveal all the required information. They might have given inflated/wrong data. 3. Some consumers did not participate during the survey. Absence of their details might have had a bearing on the final results. 4. As the area was very vast, due to time limitations all the sectors couldnt be covered. 5. Since its a very huge & new topic it was very difficult to find out the information which is useful for me.

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BIBLIOGRAPHY

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Bibliography:
Book:
Beri , G.C.- Marketing Research, Tata McGraw Hill Ltd.

Internet sources:
http://en.wikipedia.org/wiki/Global_recession http://en.wikipedia.org/wiki/Recession http://ibnlive.in.com/news/lehman-brothers-a-victim-of-us-subprime-crisis/73653-7.html http://news.in.msn.com/business/article.aspx?cp-documentid=1676344 http://smetimes.tradeindia.com/smetimes/news/top-stories/2008/Aug/14/global-recessionhurting-india-inc.html http://wiki.answers.com/Q/What_is_an_impact_of_recession_on_tourism_industry http://www.articlesbase.com/international-business-articles/impact-of-global-recession-onindian-market-655636.html http://www.economywatch.com/us-subprime/global-recession.html http://www.financialexpress.com/news/us-subprime-crisis-may-affect-india-in-many-waysparekh/260484/ http://www.pluggd.in/india/layoff-recession-impact-on-economy-3679/ http://www.rediff.com/money/2008/feb/14spec.htm http://www.rediff.com/getahead/2008/sep/23money.htm http://www.scribd.com/doc/7480461/US-Recession-and-Its-Impact-on-India http://www.thehindubusinessline.com/2008/03/18/stories/2008031851710100.htm

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