Before, understanding ´Recessionµ,

we need to understand the market

economy;

A] TWO STAGES OF MARKET ECONOMY

B] TWO FACTORS OF MARKET; - DEMAND & SUPPLY

A] TWO STAGES OF MARKET ECONOMY

A1] Growing Market Economy

A2] Declining Market Economy

 A1] Growing Market Economy

Starting Point = Willingness to buy

 A2] Declining Market Economy
Starting Point = Unwillingness to buy
B] TWO FACTORS OF MARKET; - DEMAND & SUPPLY

=
 wants his demand always to be  

  wants his buying cost always to be 


Actually, Demand is the price at which
consumer is 
 and
producer is 


Usually, we think;
Demand = Quantity
But, here Demand = Price;
This is because,
Price decides the Quantity of Sales;
Producer Price
Competitive Price = More Demand;
Consumer Price
In competitive Price = Less Demand;
 C] What is Recession?

m
 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

= !"
#$##%&' ()



 *$
$+ *
+  ,- *
&.-
*$ -

 C] What is Recession?
GDP is a good indicator of economy; Other
indicators could be;
-Unemployment Rate
-Consumption Rate
-Actual Personal Income
-Etc..

If GDP is growing, then market is growing due to

increased demand;
 C] What is Recession?
GDP is a good indicator of economy; Other
indicators could be;
-Unemployment Rate
-Consumption Rate
-Actual Personal Income
-Etc..

If GDP is growing, then market is growing due to

increased demand;


: If the recession continues for next quarter, (>6

months) then we go through /=m,,$0
Economy;
 C] What is Recession?

There is a joke that economists quote to explain the

Difference between ´Recession & Depressionµ




 
    

  

 
 

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2
  






 


 
 



 
 
 

D] What is a Business Cycle?

What goes up; Has to come Growing economy has to

down; come down if the
production
rate of goods & services was
more than the actual
consumption;
 E] Why Recession happens?

E2] LOW
E1] OVER
CONFIDENCE
PRODUCTION
LEVEL
 E] Why Recession happens?

E1] OVER
PRODUCTION

=,  A situation in which the

ACTUAL NEED WAS supply exceeds the nation·s
NOT THERE; ability to consume what has
WRONG PROJECTIONS
been produced;
COMPANIES
PRODUCED Supply > Demand
MORE
 E] Why Recession happens?

E2] LOW E2.1] Word of mouth

CONFIDENCE
LEVEL
E2.2] Assignable Cause

E2.1] Word of mouth

Low Confidence Level Consumers are fearing that they may

of Millions of lose their jobs; So, they have less
consumers and confidence to spend money and buy
producers after they goods; This will result in reduction
hear many job cuts, in demand in the market; Consumers
Demand coming down, start saving money instead of spending
Companies· bankruptcy, money; This is a downward spiral in
etc the economy;
 E] Why Recession happens?

E2] LOW E2.1] Word of mouth

CONFIDENCE
LEVEL
E2.2] Assignable Cause

E2.1] Word of mouth

Low Confidence Level Consumers

Producers are fearing
do not stockthat they may
materials, they
of Millions of lose theirtheir
reduce jobs;productions,
So, they have lessinto the
gets
consumers and confidence to spend
cost reduction money
activities, and buy
worried about
producers after they goods; This will result
the profitability, etc« in reduction
hear many job cuts, in demand in the market; Consumers
Demand coming down, start saving money instead of spending
Companies· bankruptcy, money; This is a downward spiral in
etc the economy;
 E] Why Recession happens?
E2.2] Assignable Cause







Example: September 11 Terrorist Attack in US;

International Airport block in Thailand;
Mumbai Attacked in India;
etc«

Series of such incidences

leading into a kind of War

Please see next slides, for details on business impact;

 2
12
33 ,-   ,

Created fear in people

People cancelled their travel plans

Resulted in low occupancy rates

Airlines & Hotel Industries badly hit

Airline & Hotel Industries offered discounts,

gift coupons, to attract people
But, still, no improvement in occupancy
rate
Airline & Hotel Industries started

2$ 
´Cost Reductionµ activities
$&2,$
 Terrorists· Attack on 11th September in US

Airline & Hotel Industries started

´Cost Reductionµ activities

iii] Salary reduction to

i] Reduce No. of flights ii] Lay off people
´Not laid off peopleµ

Low or No income to They became careful due

In flight meals reduced
spend and buy goods to the fear of loss of job

Meals supplying company Demand for other goods Started saving money
got the hit come down instead of spending

Catering company now, Demand for other goods

lays off people come down
So, you can see how the hit on Airline and Hotel
industries can affect / 4 0 industries
in the end;

One industry can hit many other industries when the

confidence level of millions of consumers & producers
drastically comes down;
2

 


  
  


 


 


   
  
2
  






 


 
 



 
 
 

F] How to know recession?

Indicators to say a nation is in recession;

4 =
- 55 

-  5
-


4 
  -
 
4 , -- 


4 
2  2
 G] How to come out of recession?

It is unhealthy for any nation to be in Recession;

So, Government will take certain countermeasures
to eliminate or reduce the Effect of recession for turnaround;
Important Point:
Today, it is a market Economy

=
 

  
Can produce and Can decide to
sell at their prices buy or not;


  
 
 
  


  
 
 G] How to come out of recession?
Hence, Government does not have  

 on Producers· & the
Consumers· behavior; But, they can influence millions of Producers &
Consumers with Government·s policies;

Government has 2 plans

Fiscal Policies Monetary Policies

(By Govt.) (By RBI)

Government influences the RBI manipulates

economy by changing how the available supply of
it (Government) spends money in the country
and collects money
 G] How to come out of recession?

Fiscal Government influences the economy by changing

Policies how it (Government) spends and collects money

1] Tax cuts for More money

businesses or available for
for individuals spending

2] More Spending Individuals get  -2

by Govt. to salary and spend - 2
create jobs money  
+ 
3] Automatic
Some income to
fiscal policy;
unemployed
Unemployment
people to spend
Insurance
 G] How to come out of recession?

Monetary Government manipulates the available supply

Policies of money in the country

More money
1] Reduce reserve
available for bank
ratio
to give loans

`
 


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- 2





  
 

 


 



 
+ 




 


V


  




  

V


 


 G] How to come out of recession?

Monetary Government manipulates the available supply

Policies of money in the country

More money
1] Reduce reserve
available for bank
ratio
to give loans

2] Lower the Individuals take

 -2
interest rates more loan - 2
 
+ 
 G] How to come out of recession?

Monetary Government manipulates the available supply

Policies of money in the country

More money
1] Reduce reserve
available for bank
ratio
to give loans

2] Lower the Individuals take

 -2
interest rates more loan - 2
 
+ 
3] Use its own It becomes an
 + income to Govt.
money to buy to inject money
Govt. bonds into the market
 I] WOW!!!!!!!!

RBI·s Power or Government·s Power is double-edged

sword; Sometimes, their policies to recover from recession
can be counter-productive and it may further worsen the
situation;

If we advise our people to save money, then, the multiplication effect is that
the demand will not pickup and recession will continue; Very peculiar!!!!! But, I
am not misguiding you; Just think from a macro level, if everybody in the
country stops spending, what will happen?

Nation·s recession is controlled by the actions of

everybody living
in that country;
 I] WOW!!!!!!!!

Most of the developing Currently, GDP Growth

Economies like China, Slow Down Rate Down; But,
India; Stage; Not yet Still expected to be
in Recession Around 6% in India

Most of the developed

Economies like US, Currently, GDP Growth
Japan, Germany, etc in Recession Rate Negative;
 HOPING THIS TIME
RECESSION VANISHES
SOON SO THAT
INDIA GETS BACK
TO ITS STRONGER
GDP GROWTH RATE
OF V 236
(THOUGH THE EXPERSTS
SAY IT WILL LAST TILL
Q3 OF 2009)
 
 
  

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On the issue  7
,  suggested ²
´A coordinated fiscal stimulus by countries that are in a position to
do so would help to mitigate the severity and duration of the
recessionµ
´It would also send a strong signal to investors around the world.
Resort to fiscal stimulus may be viewed as risky in some situations,
but if we are indeed on the brink of the worst downturn since the
Great Depression, the risk may be worth taking,µ he added.
 (á ( 

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.
' This will mean drawing down the dollar reserves which is important at this hour.
' In the IT sector, there should be correction in salary offerings rather than job cutting
' Public should spend wisely and save more
' Taxes including excise duty and custom duty should be reduced to lighten the adverse
effect of economic crunch on various industries
' In real estate the builders should drop prices, so as to bring buyers back into the
market.
' Also, the government should try and improve liquidity,while CRR and SLR must be
cut further
' 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
 $  
 
á
US recession may be a boon for Indian offshore software companies
The impact of recession is higher to small and medium sized (SMEs)
enterprises whose bottom lines get squeezed due to lack of spending
by consumers
SMEs in the US are under severe pressure to increase profitability and
business margins to survive. This will force them to outsource and even
have M&A arrangements with Indian firms.
India is going to be a great beneficiary of this trend which will minimize
the impact of the US recession on Indian industry
By March 2008, India had received SME outsourcing deals worth $7 billion
from the US as against $6.2 billion in the previous year




 
 





  


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