recession in the us and its aftereffects in india

8/14/2019 recession in the US and its aftereffects in India

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Major Recessionary Trends in IndiaMa

jor Recessionary Trends in India

& USA and its aftereffects& USA and its aftereffects

Presented by – Presen

ted by –

Riddhisha KalaniRiddhisha Kalani



What Is Recession ?What Is Recession ?

A Recession is a contraction phase of the business cycle.

National Bureau of Economic Research (NBER) is the

official agency in charge of declaring that the economy is in astate of recession.

They define recession as :

“significant decline in economic activity lasting more than a fewmonths, 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 longer.

http://en.wikipedia.org/wiki/Business_cycle

http://en.wikipedia.org/wiki/Business_cycle



What Causes Recession ?What Causes Recession ?

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 sharprise in unemployment.

Investors spend less as they fear stocks values will fall and

thus stock markets fall on negative sentiment.



US Crisis Hits IndiaUS Crisis Hits India

US faced major crisis because of -

• Subprime mortgage crisis (homeloan defaults)

• Rising oil prices at $100 a barrel• Global Inflation

• High unemployment rates

• A declining dollar value

All this slowed down the growth of the economy and as theGDP growth rate fell to 2%, recession set in.



Oil Price Fluctuations



Low GDP growth indicatingLow GDP growth indicating

Recession in USRecession in US



Impact on IndiaIm pact on India

A slowdown in the US economy is bad news for India because:

• Indian companies have major outsourcing deals from the US

• India's exports to the US have also grown substantially over

the years.

• Indian companies with big tickets deals in the US are seeing

their profit margins shrinking.



Share MarketShare Market

• More people have sold the shares in the indian share market

than they bought in the recent weeks. This has added to the fallof sensex to lower points.

• Foreign investors have pulled out from stock markets leading to

heavy losses in stocks and mutual funds

• Stock broking houses are laying-off people

• Because of such uncertainty many people have started saving

money in banks rather than investing

Anatomy of the economic depressionAnatomy of the economic depression

in Indiain India



IT and Real Estate Sector IT and Real Estate Sector

• The key challenges faced by the industry now are inflation and

the psychological impact of the US crisis, leading thecompanies to hit the panic button.

• Bonuses, perks, lavish parties, and many other benefits are

missing as companies look to cut cost.

• India's IT export growth is also slowering down

• One of the casualties this time are real estate, where building

projects are half-done all over the country and in this tight

liquidity situation developers find it difficult to raise finances.



Layoffs and UnemploymentLayoffs and Unemployment

• Hundreds of workers have lost jobs in diamond jewellery,

textiles and leather industry.

• Companies in IT industry have stopped hiring and

projected lower manpower need.• Firms attached to the capital market are laying off people

and large companies are putting their future expansion

plans on hold.



Industrial sector Industrial sector

• Government and other private companies are reluctant in

starting new ventures and starting new projects.

• Projects that are halfway to completion, or companies that

are stuck with cash flow issues on businesses that are yet to

reach break even, will run out of cash.

• Car, bike & truck sales down

• Steel plants are cutting production

• Hospitality and airlines are hit by poor demand



On the issue Mr. Manmohan Singh suggested –

“A coordinated fiscal stimulus by countries that

are in a position to do so would help to mitigatethe severity and duration of the recession”

“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 weare indeed on the brink of the worst downturn

since the Great Depression(of the 1930’s), the

risk may be worth taking,” he added.

Zenith’s Suggest



Corrective Steps to Check RecessionCorrective Steps to Check Recession

• 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,whileCRR 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 costcompetitiveness in a tight export market situation

Corrective Measures..Contd.



Opportunities in India due toOpportunities in India due to

recessionrecession• 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

recession in the us and its aftereffects in india

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