Effect Of Recession On India By Rahul In

IMPACT OF GLOBAL RECESSION ON INDIA

PRESENTATION MADE BY: Rahul Buragohain (006) MBA 1ST SEMESTER NIEC

MANAGERIAL ECONOMICS

 Indian

companies have major outsourcing deals from the US.

 India's

exports to the US have also grown substantially over the years.

 More

people have sold the shares in the indian share market than they bought in the recent weeks. This has added to the fall of sensex to lower points.

One

danger meanwhile is of a dip in the employment market. There is already anecdotal evidence of this in the IT and financial sectors, and reports of quiet downsizing in many other fields as companies cut costs.

Many

companies has laid off their staffs, the number of tourists inflow to india has come down, companies have cut down compensations and perks etc, government and other private companies are reluctant in starting new ventures and starting new projects etc.

One

of the casualties this time could be 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.



The only way out of the mess is for builders to drop prices, which had reached unrealistic levels and assumed the characteristics of a property bubble, so as to bring buyers back into the market, but there is not enough evidence of that happening.

Recession in jobs availiability and companies following downsizaing in the existing available staff and cutting down of the perks and salary corrections. Globally the financial sector sacking the existing base of employees

In high numbers in US the major example being CITI Group same still followed by others in hospitality industry Jet and Kingfisher Airlines too. The cut in salary for the pilots being 90 % can any one

For the first time in five years, India’s export growth has turned negative. Exports for October 2008 contracted by 15% on a year-on-year basis. This should not surprise as the OECD economies that account for over 40% of India’s export market have been slowing for months. With the US and EU already entering a phase of recession, India’s export growth had to fall sharply. It must be noted this growth contraction has come after a robust 25%-plus average export growth since 2003. A low-to-negative growth in exports may continue for sometime until consumption revives in the developed economies.

A slowdown in export growth also has other implications for the economy. Close to 50% of India’s exports — textiles, garments, gems and jewellery, leather and so on — originate from the labourintensive smalland mediumenterprises.

In summary, at the macro-level, a recession in the US may bring down GDP growth, but not by much. At the microlevel, specific sectors could be affected. Innovation now may prove to be the engine for growth when the next boom occurs. For US firms, who have long looked at China as a better investment destination, this may be a good time to look at India as well. After all, 350 million people with purchasing power cannot be ignored. This is not a sales pitch for India, but only a gentle suggestion to US corporations.

A slowdown in the us economy is bad news for India because:Indian companies have major outsourcing deals from the us.  India’s export to the us also grown substantially over the years.  Indian companies with big tickets deals in the us are seeing their profit margin shrinking. 

Share market!

IT & real estate sector

IT

industries, financial sectors, real estate owners, car Industry, investment banking and other industries as well are confronting heavy loss due to the fall down of global economy. Inflation and psychological impact of the us crisis. benefits are missing as companies look to cut cost. India's export growth is also slowering down. one of the casualties this time are real estate, where building projects are half done al over the country and in this tight liquidity situation developers find it difficult to raise finance.

Federation of Indian chambers of Commerce and Industry (FICCI) found that faced with the global recession, inventories industries like garment, gems, textiles, chemicals and jewellery had cut production by 10 per cent to 50 per cent.

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 stuck with cash flow issues on business that are yet to reach break even, will run out of cash.



Car, bike & truck sales down.



Steel plants also cutting production.



Hospitality and airlines are hit by poor demand.

Companies

in the private sector and government sector are hesitant to take up new projects. And they are working on existing projects only.

Projections

indicate that up to one crore persons could lose their jobs in the correct fiscal ending March. . The one crore figure has been compiled by Federation of Indian Export Organisations (FIEO), which says that it has carried out an intensive survey.

The

textile, garment and handicraft industry are worse effected. Together, they are going to lose four million jobs by April 2009, according to the FIEO survey

Banking sector!

Indian

banks are facing through a tough time of liquidity crunch. Lehman Brothers had invested a great amount in the stocks of Indian banks that have invested in derivatives.

A

sudden fall in the economy directly affected Lehman and Merill, eventually forcing them to file a bankruptcy.

Falling

down of Lehman had a great impact on the leading international bank, ICICI Bank, a bank that had invested in Lehman’s bonds. This meltdown even have covered the Axis Bank but not to a great extent.

Lehman

Brothers had signed a partnership with some of the real estate companies like Peninsula Land Ltd and DLF Assets. These have also suffered a heavy loss.

With

all this, the Indian Sensex swung violently downward, mainly because of the foreign companies pulling out credits to meet high inflations.

Central

banks have worked to improve liquidity but are charging higher credits. The interest rates have drastically increased from 11.5% to nearly about 16%.

On

the issue Mr. Manmohan Singh suggested-

“ A coordinated fiscal stimulus by countries that are in a position to do so would help to mitigate the 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 situation, but if we are indeed on the brink of the worst downturn since the great depression, the risk may be worth taking,” he added.

Corrective

Steps taken to Check Recessio n



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 .

POLICY RATES

The Repo

Rate has been cut by 50 bps to 5.5 % w.e.f. November 03, 2008.

The SLR has

been cut by 100 bps to 24.0 % w.e.f. November 08, 2008.

The CRR has

been cut by 100 bps in two stages. First 50 bps cut w.e.f. October 25, 2008 and another 50 bps cut from November 08, 2008. The current CRR is thus 5.5. The Cash Reserve Ratio (CRR) has been further cut by 50 basis points from 5.5 per cent to 5.0 per cent from the fortnight beginning January 17, 2009.

Reserve Ratios (2008) Cash Reserve Ratio 5%. Statutory Liquidity Ratio 24.0%.

Lending or Deposit Rates (2008) Prime Lending Rate 12.75%-13.25%. Saving Bank Rate 3.5% Deposit Rate 7.50%-10.75 .

Current economic scenario Impact of recession on India Recession

has grabbed almost all the organisations of the world. Several people have lost jobs facing the financial problems. Government - doing best to come out of the problem. Banks are providing business loans at low rate.

Government

- providing money packages to organisations. If I talk about India, here the situation is still satisfactory if compare it with other countries of the world. Reserve bank of India (RBI) has decreased the rate of interest. SBI and ICICI are also providing different types of loans at a low rate of interest.

Organisations

are cutting cost to stand in the market. Export businesses of India is going up. The real state was doing good business. But nowadays the condition of real state is still worse because of recession.

Sources www.google.com. www.wikipedia.com. Business

line – the magazine.