IMPACT OF GLOBAL RECESSION ON INDIA

Introduction

Fear of a recession looms over the United States, whenever the US sneezes, the world catches a cold. Indian markets crashed taking a cue from a probable recession in the US. Weakening of the American economy is bad news, not just for India, but for the rest of the world too.

What is Recession?
Recession is the economy shrinking for two consecutive quarters (=6 months) with a decrease in the GDP (=Gross Domestic Product)
 

GDP = Value of all the reported goods and services produced by the people operating in the country

GDP = MONEY VALUE OF {C + I + G + (X – M)} C = Consumables, I = Gross Investments, G = Government Spending, X = Exports, M = Imports

What is Recession?

GDP is a good indicator of economy; Other indicators could be; -Unemployment Rate -Consumption Rate -Actual Personal Income -Decrease in factory production -An Unhealthy stock market If GDP is growing, then market is growing due to increased demand;

What is Recession?

There is a joke that economists quote to explain the Difference between “Recession & Depression”

RECESSION
= WHEN YOUR NEIGHBOR LOSES HIS JOB

DEPRESSION
= WHEN YOU LOSE YOUR JOB

What is a Business Cycle?
Growing economy has to come down if the production rate of goods & services was more than the actual consumption;

What goes up; What goes up; Has to come to come down; down;

What causes it?

An economy grows over a period of time tends to slow down the growth as a part of the normal economic cycle when consumers lose confidence in the growth of the economy and spend less. Leads to a decreased demand for goods and services Leads to a decrease in production, lay-offs and a sharp rise in unemployment.

 

Why Recession happens?

OVER PRODUCTION

LOW CONFIDENCE LEVEL

Stock markets & Recession

Stock markets reflect the buoyancy of the economy.  Recession is yet to be declared by the Bureau of Economic Analysis  Indian stock markets also crashed due to a slowdown in the US economy.  Markets bounced back after the US Fed cut interest rates

Current crisis in the US

Defaults on sub-prime mortgages have led to a major crisis in the US.  Sub-prime is a risky debt offered to people with poor credit or unstable incomes.  Major Banks landed in trouble after people could not pay back loans.  Housing market soared on the back of easy availability of loans

Current crisis in the US

Realty sector boomed but could not sustain the momentum for long and collapsed due to loan defaults.  Foreclosures spread like wildfire putting the US economy on shaky ground.  coupled with rising oil prices at $100 a barrel, slowed down the growth of the economy.

Impact of an American Recession on India

Indian companies have major outsourcing deals from the US.  India economy is likely to lose between 1-2 percentage points in GDP growth in the next fiscal year.  Worries for exporters will grow as rupee strengthens further against the dollar.

Impact of an American Recession on India
Experts note that the long-term prospects for India are stable  whole of Asia would be hit by a recession as it depends on the US economy  In the globalised world, complete decoupling is impossible  India may remain relatively less affected by adverse global events.

Impact of an American Recession on India
 Many

small and medium companies have already started developing trade ties with China and European countries to ward off big losses.  IT and IT-enabled services, textiles, jewellery, handicrafts and leather segments will suffer losses because of their trade link.

Impact of an Global Recession on India
 IT

sector will be the worst hit as 75 per cent of its revenues come from the US.  If the service sector takes a serious hit, India may have to revise its GDP to about 8 to 8.5 per cent or even less.

Impact of an Global Recession on India
 The

following graph shows the changing trend over the Years in all the major sectors which contributes the overall development of the Indian Economy

Impact of an Global Recession on India
3 0 2 5 2 0 1 5 1 0 5
In fr a st ru ct u re B T FS e le I co m FM P C h G a rm a IT ES

20 07 20 08 2 0 Po 09r j

0

O IT ve ra ll

Impact of an Global Recession on India
Global recession has made Indian companies to give lay offs. The following graph shows Layoffs in the Total Workforce of Major IT Companies across various verticals at different locations

Impact of an Global Recession on India
L yoff a
900 800 700 600 500 400 300 200 100 0
icr os of t TC S Sa pi en t Pa tn i W ip ro IB M

Layoff

M

Mental Meltdown
 Shrinking

jobs and Pay cuts owing to recession have taken heavy toll on mental health of India’s high-profile work force  Dr. Jitendra Nagpal, physiatrist says the majority of those people are 25-30 age group  symptoms are loss of appetite, irritability, long spells of silence, lack of communication with family and friends and absenteeism

Mental Meltdown
 Although

no empirical data are available on how many people affected from recession and suffering from work-related stress.  But increase in number of cases is a matter of concern for both organizations and families.  Nagpal says this is due to unable to face realities of failure, which develops a fear for work, he believes this is mainly due to the lay off and fear of losing the job.

Hard challenges ITBPO services

Confidence levels appear to be at an all time low in IT industry  2001-03 slowdowns in the US economy saw the world embrace the off shoring of IT and BPO services like never before.  Current recession threatens to reverse much of that, with protectionism gaining ground in the US.

Hard challenges ITBPO services
Level Wise Average Salary Increase over the period of years in Indian IT companies and the projection now in the year 2009

Ex ec ut iv M e an M ag Ju id em ni dl or e en M M t an an ag ag er em /S en up t er vi so r/ P. .. Se ni or

To p

18 16 14 12 10 8 6 4 2 0 2008 2007

Hard challenges IT-BPO services

2009 Proj

Out of America
Old bugbear, protectionist legislation, has come back to haunt the industry  Now $52 billion Indian IT services juggernaut is worried.  US Senate voted to restrict the hiring of foreign workers (H-1B visa holders) by banks that are receiving government bailouts under the Troubled Assets Relief Program (TARP).

Out of America
 The

recession has forced the US to become protectionist  "Most Fortune 100 companies have a large portion of their business outside the US.  This will restrict them to do most of the company to outsource and this will create lot of job opportunities for Americans.

Bad protection
 Protectionism

will be bad for both the US and

India  The Smoot-Hawley Tariff Act of 1930 is an example of how a recession deepen to a depression.  Economists now believe that the Great Depression was deepened as a result of this legislation.  Again a similar situation could arise now.

Counter strategy     
 There

is already a shift in business strategies of corporate India  Large IT and BPO firms have started looking at other markets like Europe, and even the domestic market.  Indian companies will have to adopt a multipronged strategy  In case of a full US recession, the onsite staffing business will see a decline in sales and profit.

Counter strategy    
 Recessions

at this juncture may not last for more than two to three years  Smart companies will continue investments to take advantage when recession ends.  India will have to spend a lot more to develop market and supply chain links in alternate markets like Asia and Europe.  Experts say the export dependent sectors need to re-focus on local demand and income from nondollar economies.

Can India be a market option?
 IT

firms can definitely find a market in India  India has a huge, small and medium enterprise base and it is the right time to tap this segment.  As for automotive components, consumer electronics and mobile devices, they have already found a market in India  They have also started looking at tie-ups in China and other BRIC countries.

Consequences of Global recession on India job market because of Global recession will  Worst affected
be service industry of India  Service industry contributes about 52% to India's GDP growth.  People may say that there is going to be a huge job loss due to recession  There is no threat to the skilled people  NASSCOM said India will have a shortage of about 5 million skilled people in IT/ITeS

Consequences of Global recession on India job market
 India's

travel, tourism and power industry is going to grow at a better rate.  India has a huge population so a huge consumer base so we don’t have to always depend on US for our growth  India's GDP is expected to grow at the rate of 8.5-8.9 % which is again way above the growth rate of US

 Its

time to be innovative and more effective to increase the over all efficiency and go for systematic cost cutting to balance the rupee effect.  In West Africa goods at departmental stores are sold at the rate 5 times than Indian price and Indian goods  It’s an excellent opportunity for our exporters.

Consequences of Global recession on India job market

Conclusion
 The

overall impact of a Global slowdown on India would be minimal  Unlike the rest of Asia, India is a strong domestic demand story  So any slowing in the US is likely to have a more muted impact on India.  Strong growth in domestic consumption and significant spending on infrastructure are the two pillars of India’s growth story

Conclusion
 Corporate

India is also learning to master the art of efficient capital management and delivery of value-added services to sustain profit margins.  Interest rates are expected to be stable primarily due to control over inflation and proactive measures undertaken by the RBI.

Conclusion
 The

electoral mandate may force a course correction.  The intervening period of more than three months can be one in which the economy and mass livelihoods suffer damage that can take too long to repair.

Conclusion
HOPING THIS TIME RECESSION VANISHES SOON SO THAT INDIA GETS BACK TO ITS STRONGER GDP GROWTH RATE OF 8% TO 10% (THOUGH THE EXPERSTS SAY IT WILL LAST TILL Q3 OF 2009)

THANK YOU

Sign up to vote on this title
UsefulNot useful