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In economics, the term recession generally describes the reduction of a country's Gross Domestic Product (GDP) for at least two quarters. In the other words, recession is reduction in economic activities in the country.
Recession and its impacts on insurance sector in India.
Credit crunches Banks may suddenly stop or slows down lending activity that means many persons might not purchase any sort of properties which might leads to reduction in sale of many fire insurance policies.
Reduction in savings Recession directly effects the income of the person which in result decrease the amount of saving and that leads to reduction in sale of insurance policies.
Unemployment when a person is available to work and currently seeking work, but the person is without work. When the person does not have employment then he/she is not able to save which badly effects insurance sector.
Early entrants are not getting jobs.
Companies are closing.
Sales are not picking up.
Suddenly cash has evaporated from the market.
Profitability is seriously hit.
Investments in india in different types of policies of LIC and other insurance companies. (In billions.) Source:- IRDA
Savings Rate in india Source: Commerce Department, Bureau of Economic Analysis July 2008: 1.2% 2007 2008 2009
REDUCTION IN SALES OF INSURANCE SECTOR Source: IRDA Aug. 2008: $381.2 billion 2008 2009 Total retail sales in billions of dollars, seasonally adjusted.
REDUCTION IN SALE OF ULIP POLICIES Source: IRDA Aug. 2008: 100.8 2007 2008 2009
Sales of new insurance policies. Source: TIMES OF INDIA July 2008: 515,000
Percentage change in sale of new policies. 2004 2005 2006 2007 2008 0
Deficit in Indian Insurance Trade Source: Economic times 2007 2008 July 2008: $62.2 billion
Consumer Confidence Index Source: Hindustan times 2007 2008 Aug. 2008: 56.9
INDIA’S Jobless Rate In percent, seasonally adjusted: Source:Department of Labor 2008 2009
Increament in Unemployment Rate in india due to recession. Source: Indian Workforce Commission
How to come out of Recession?
It is unhealthy for any nation to be in Recession;
Government will take certain countermeasures to eliminate or reduce the effect of recession for turnaround;
Important Point : Today, it is a market Economy,
Producers can produce and can sell at their prices and Consumers;can decide to buy or not…
Here both Producers and consumers are free to act without forced action.
Do not take too much vacation.
Do not ask for promotion. Don’t emphasize(ask) for huge salary increase. If you ask, you may soon not have a job. Remember, there are people available with better skills at lower salary levels.
Do not complain.
Do not waste time gossiping.
Don’t resist a transfer.
Don’t resist travel.
Don’t resist a salary cut if done with valid reasons.
Don’t resist extra time at office if needed.
Don’t change jobs in this market. It is too risky.
Be punctual to office.
Ensure you pick up new skills.
Do something innovative.
Take training programs.
Always be engaged & productive.
Ensure you deliver as per deadlines.
Organize team meeting to improve productivity.
Ensure that you contribute to knowledge forums etc..
Work doubly hard and save money for your company.
Your boss is always right and is the best (During recession or no recession).
Take a list of your expenses.
Tick “Need to have” vs. “Nice to have”
Knock off all “Nice to have expenses” – Right Now !
Assuming you didn’t have a job – Plan for cash to survive for 24 months. considering, this recession will take at least 24 months to come out !
Government Plans against the Recession?
Hence, Government does not have direct control on Producers’ & the Consumers’ behavior; But, they can influence millions of Producers &Consumers with Government’s policies;
Government has 2 plans Fiscal Policies (By Govt.) Monetary Policies (By RBI) Government influences the economy by changing how it (Government) spends and collects money RBI manipulates the available supply of money in the country
Govt control through RBI
Repo Rate : Repo rate is the rate at which the banks can borrow money from a central bank of the country in order to avoid shortage of funds. It is also a financial & economic tool in the hands of government to control the availability of money supply in the market by altering the repo rate from time to time.Current repo rate is 5.0 %.
Reverse Repo Rate : Reverse Repo rate is the rate at which Reserve Bank of India (RBI) borrows money from banks. Banks are always happy to lend money to RBI since their money are in safe hands with a good interest. Current rate is 3.0 %.
CRR : Cash Reserve Ratio is the amount of money that the banks have to necessarily keep with the RBI.The RBI pays the interest on the amount kept with it. Current CRR rate is 5.0 %.
Government Fiscal Policies Government influences the economy by changing how Government spends and collects money 1] Tax cuts for businesses or for individuals More money available for spending Demand picks up; Market can recover; 2] More spending by Govt. to create jobs Individuals get salary and spend money 3] Automatic fiscal policy; Unemployment Insurance Some income to unemployed people to spend Fiscal Policies
Government Monetary Policies 1] Reduce CRR for banks More money available for bank to give loans Demand picks up; Market can recover; Government manipulates the available supply of money in the country Monetary Policies 2] Lower the Repo & Reserve repo rates` Individuals take more loan
What about India in global market crises Most of the developing economies like China, India; Currently, Slow Down Stage; Not yet in Recession Most of the developed economies like US, Japan, Germany, etc Currently, in Recession GDP Growth Rate Down; But, Still expected to be Around 6% in India GDP Growth Rate Negative;
Don’t worry What goes down will always go up, Markets will rebound – these tips will prepare you to be a winner !! HOPING THIS TIME RECESSION VANISHES SOON SO THAT INDIA GETS BACK TO ITS STRONGER GDP GROWTH RATE OF 8% TO 10% . (AS PER THE EXPERSTS OPINIONS IT WILL LAST TILL Q3 of 2009 ).. You can be updated yourself with the current economic condition through ‘ Business TV-channels,News,News papers’.