A recession is a contraction phase of the business cycle where significant decline in economic activity lasts more than a few months, which is normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.
The current economic recession has hardly spared any country on earth. Rich countries like USA, UK, Germany, Australia, Japan, Canada- almost all the rich countries have got badly hurt from the recession. So, there is no reason to be surprised to know that Indian economy is also getting hurt from the global economic recession.
Low Interest Rate Availability of Easy Money & Excess Liquidity. Higher Borrowing by US Households Consumption Led Growth & Asset Price Bubble. Resulted in High Inflation & Increasing Interest Rate
Sub Prime lending is lending to people who have very poor credit history.
In US, a lot of loans, particularly mortgages, were extended to a wide target group including people who had very low repayment capacities and paid very low margin.
These loans then were bundled into packages by Investment Bankers and were sold to investors like pension funds, insurance companies, hedge funds etc. Today these loans constitute the largest component of the US Debt Market.
Sustained Lower interest rates in the US saw most asset prices going up for long time. This encouraged prospective home buyers to take loans and buy houses.
Around the same time, a lot of financial innovations took place, main being securitization of assets. In this, mortgage companies used to extend loans to home buyers and sell these loans onwards to investors.
Since mortgage companies were not holding these mortgages, basic due diligence of creditworthiness of home loans deteriorated. On the other hand, due to lower interest rates, there was a lot of demand for mortgage bonds as they were yielding attractive yields.
By the end of 2006, share of sub-prime in total lending had crossed 20%. And by Q2 of 2007 out of the total mortgage bond market of $6.8 trillion, distressed debt was of $2.8 trillion.
For India, it is even a bigger problem because India is the land of IT outsourcing and a lot of large western companies outsource their IT services to Indian companies. So, it is obvious that the supply of works for Indian IT companies will suffer in 2009. If the global economic recession continues then Indian companies may really suffer even in 2010
Where is recession? – As per Hewitt survey report Indian companies are increasing salaries at highest rate in Asia
As per a survey of 480 Indian companies over December 2008 and January 2009 conducted by hr consultancy firm Hewitt - despite the economic slowdown, a majority of Indian companies are still hiring employees. Here are some interesting revelations of this survey
Average salary hike in India in 2009 will be 8.2% (the highest in the Asia pacific region however first time in six years that India is likely to see single-digit salary increases)
Projected salary hike is lower than the increase of 13.3% seen in 2008
The hike higher than china (8%) USA (3.2%) and Japan (2.3%)
Sectors expected to see the highest raises are FMCG, durables and telecom.
Healthcare is sector that is doing well globally and in India. In 2008, hospitals had awarded the lowest salary increases but have been placed among the top five sectors for 2009.