Managerial Economics Presentation On Recession In India Presented By: Amarjeet Singh (GJU09022) Ashok Kumar (GJU09009) Mridul Kumar Pathak (GJU09363) Ramesh Gakhar (GJU09202)
So what is a recession?
RECESSIONS ARE the result of reduction in the demand of products in the global market. Recession can also be associated with falling prices known as deflation due to lack of demand of products. Again, it could be the result of inflation or a combination of increasing prices and stagnant economic growth in the west.
A recession is a decline in a country's gross domestic product (GDP) growth for two or more consecutive quarters of a year. A recession is also preceded by several quarters of slowing down.
History of Recession
However in the great depression of 1930s Keynes was very critical of this classical view he said that the long period of negative growth showed that markets do not automatically clear he argued that this was for various reasons.
Wages are sticky downwards, Firms should cut wages to reflect lower prices but in reality workers are very resistant to cuts in nominal wages
If wages were cut in response to unemployment workers would have less spending power therefore AD would continue to fall.
In a recession people have low confidence and therefore spend less.
The recession of 1981 was caused by:
High strength of the pound which made exports more expensive and reduced AD.This recession particularly effected British manufacturing.
High interest rates, The govt was committed to reducing the inflation of 27% they inherited. They maintained a tight monetary policy which reduced inflation but at a cost of falling spending, investment and outpur.
Tight Fiscal Policy, To control inflation the govt were committed to reducing the levels of Government borrowing. This was influenced from Monetarist beliefs that controlling excess government borrowing was essential to the economy
The recession of 1991 was caused by
BOOM and BUST. In the 1980s economic growth was too fast and unsustainable therefore inflation increased, to reduce it the govt deflated the economy.
Joining the Exchange Rate Mechanism. The govt wanted to maintain a high value of the pound this required high interest rates of 15% which caused a big fall in AD.
Cause Of Current Recession
The financial crisis has been linked to reckless and unsustainable lending practices resulting from the deregulation and securitization of real estate mortgages in the United States. . The emergence of Sub-prime loan losses in 2007 began the crisis and exposed other risky loans and over-inflated asset prices. With loan losses mounting and the fall of Lehman Brothers on September 15, 2008, a major panic broke out on the inter-bank loan market. As share and housing prices declined many large and well established investment and commercial banks in the United States and Europe suffered huge losses and even faced bankruptcy, resulting in massive public financial assistance.
A global recession has resulted in a sharp drop in international trade, rising unemployment and slumping commodity prices.
Credit crunch - shortage of finance
Falling house prices - related to shortage of mortgages and credit crunch
Cost push inflation squeezing incomes and reducing disposable income
Effects Of Recession
Effects Of Recession In India UNEMPLOYMENT:- Nearly 50,000 to 150,000 Indian workers, most of them from the Gulf countries, have probably returned to the country due to the global economic slowdown, Minister for Overseas Indian Affairs Vayalar Ravi informed parliament Wednesday. In his written reply to a question, Ravi told the Lok Sabha that the workers in the United Arab Emirates seemed to be most affected.
Oil is extremely important for any country and 2008 witnessed highest ever increase in oil prices. Due to high oil prices, food prices also increased significantly. Crude oil prices rose to $ 147 per barrel from $ 80 per barrel in a span of 6-7 months.
IT Industries, financial Sectors, Real Estate owners, Car Industry, Investment Banking and other industries in India suffered from heavy losses due to the fall down in the global economy.
The Textile, Garment and Handicraft Market are worse affected as Recession is the result of reduction in the demand of products in Indian Market
How to tackle the global slump?
The following measures can be adopted to tackle the recession:
Tax cuts are generally the first step any government takes during slump.
Government should hike its spending to create more jobs and boost the manufacturing sectors in the country.
Government should try to increase the export against the initial export.
The way out for builders is to reduce the unrealistic prices of property to bring back the buyers into the market. And thus raise finances for the incomplete projects that they are developing.
The falling rupees against the dollar will bring a boost in the export industry. Though the buyers in the west might become scarce.
The oil prices decline will also have a positive impact on the importers.