impact of recession in india


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impact of recession in india

  1. 1. SHARDA UNIVERSITY Report Writing Assignment Topic: - Impact of recession in India Submitted to: Ms.Rimjhim Tandon School of Business Studies Submitted By: Bikash singh Chirag garg Roll No:100241034 and100241037 Subject:Professional Writing (PEP) Programm: BBA Sem IV Batch: 2010 - 2013Topic: Impact of recession in India Page 1
  2. 2. SHARDA UNIVERSITYLETTER OF TRANSMITTALDear Ms. RimjhimTandonIn the fulfilment of the requirement for the BBA degree course of the SHARDAUNIVERSITY we made this project .We carefully observed that recession is the result ofreduction in the demand of products in the global market.Recession can also be associated with falling prices known as deflation due to lack ofdemand of products, it could be the result of inflation or a combination of increasing pricesand stagnant economic growth in the west.IT industries, financial sectors, real estate owners, car industry, investment banking and otherindustries as well are confronting heavy loss due to the fall down of global economy.In recession every sector of business is affected But few sectors which will grow in thatsituations thay are like food sector, railways sector , education sector etc.Yours sincerelyBikash singhChirag gargTopic: Impact of recession in India Page 2
  3. 3. SHARDA UNIVERSITYACKNOWLEDGEMENTIf words are considered to be sign of gratitude then let these words convey the very same.I am highly indebted to lecturer Ms. Rimjhim , who has provide me with the necessaryinformation and also for the support and her valuable suggestions and comments on bringingout this report in the best way possible.I feel great pleasure to cordial thanks to all faculty members of management department whosincerely supported me with the valuable insights into the completion of this project and I amthankful to that power that always inspire me to take right step in the journey of success inmy life.Topic: Impact of recession in India Page 3
  4. 4. SHARDA UNIVERSITYINDEXObjective of the studyNeed of the studyCauses of recessionEffects of recessionResearch methodologyIntroductionConsequences of US recession on India job marketRecession and politicsImpact of an American Recession on IndiaConclusionRecommendationAppendicesBibliographyTopic: Impact of recession in India Page 4
  5. 5. SHARDA UNIVERSITYOBJECTIVE OF THE STUDY Recession is 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 ofdemand of products. Again, it could be the result of inflation or a combination of increasingprices and stagnant economic growth in the west.Recession in the West, especially the United States, is a very bad news for our country. Ourcompanies in India have most outsourcing deals from the US. Even our exports to US haveincreased over the years. There is a decline in the employment market due to the recession inthe West. There has been a significant drop in the new hiring which is a cause of greatconcern for us. Some companies have laid off their employees and there have been cut inpromotions, compensation and perks of the employees. Companies in the private sector andgovernment sector are hesitant to take up new projects. And they are working on existingprojects only. Projections indicate that up to one crore persons could lose their jobs in thecorrect fiscal ending March. The one crore figure has been compiled by Federation of IndianExport Organizations (FIEO), which says that it has carried out an intensive survey. Thetextile, garment and handicraft industry are worse affected. There has also been a decline inthe tourist inflow lately. The real estate has also a problem of tight liquidity situations, wherethe developers are finding it hard to raise finances. IT industries, financial sectors, real estateowners, car industry, investment banking and other industries as well are confronting heavyloss due to the fall down of global economy. Recession is not to be confused with depression.Recession means a slow down or slump or temporary collapse of a business activity. In itsearly stage it can be controlled in a methodical manner. Experience helps to avert totalcollapse. Unchecked, it leads to severe depression. Depression is a dead end. It is time toclose shop completely. It is a total state of irrevocable economic failure. When a country isdoing well all round its Gross Domestic Product (GDP) is on the rise. Overall economy isbullish; it is not only the stock exchanges that tell riches to rags stories but even smallbusinesses. It all adds to the national exchequer. An economist is likely to give a detailed,comprehensive definition of recession. But for the layman who has been affected knows itonly one way-when he loses his job and has no money to pay his credit and loans. Recessionis when the consumer faces foreclosure and the banker comes knocking for his pound (ordollar) of flesh. Many companies and whole countries go bankrupt for want of liquid fundsand cash flow for even daily requirements .If you look at it from the point of view of abusinessman, recession is a transitory phase. The Business Cycle Dating Committee of theNational Bureau of Economic Research has another definition. It profiles the businesses thathave peaked with their activity in one season and it falls naturally in the next season. Itregains its original position with new products or sales and continues to expand. This revivalmakes the recession a mild phase that large companies tolerate. As the fiscal position rises,there is no reason to worry. Recession can last up to a year. When it happens year after yearthen itserious.Topic: Impact of recession in India Page 5
  6. 6. SHARDA UNIVERSITYNEED OF THE STUDY :In a 1975 New York Times article, economic statistician Julius Shiskin suggested severalrules of thumb to identify a recession; these included the rule of two successive quarterlydeclines in GDP. Over time, the other rules have been largely forgotten, and a recession isnow often identified as the reduction of a countrys GDP (or negative real economic growth)for at least two quarters. Some economists prefer a more robust definition of a 1.5% rise inunemployment within 12 months.In the United States the Business Cycle Dating Committee of the National Bureau ofEconomic Research (NBER) is generally seen as the authority for dating US recessions. TheNBER defines an economic recession as: "a significant decline in economic activity spreadacross the country, lasting more than a few months, normally visible in real GDP growth, realpersonal income, employment (non-farm payrolls), industrial production, and wholesale-retail sales." Almost universally, academic economists, policy makers, and businesses deferto the determination by the NBER for the precise dating of a recessions onset and end.A recession has many attributes that can occur simultaneously and can include declines incoincident measures of activity such as employment, investment, and corporate profits.CAUSES OF RECESSION Currency crisis Energy crisis War Under consumption Overproduction Financial crisis Price of FuelsEFFECTS OF RECESSION Bankruptcies Credit crunches Deflation Foreclosures UnemploymentTopic: Impact of recession in India Page 6
  7. 7. SHARDA UNIVERSITYRESEARCH METHODOLOGY : 1) Recession is good for the economy Yes/No 2) Recession lower the interest rate Yes/No 3) Recession is the result of over production Yes/No 4) Recession is the result of under consumption Yes/No 5) Recession decrease the value of currency Yes/No 6) Recession increase the unemployment Yes/No 7) Price of fuel effect recession Yes/No 8) Recession increase deflation Yes/No 9) War in an economy bring recession Yes/No 10) Recession in developed countrys bring recession in developing countrys Yes/NoFor knowing some data we made a questionare and give to 50 individuals and because of thiswe come to know 35% individuals think over production is the main cause of recession andremaining things under consumption is the main cause of recession. 40% individuals thinkunemployment is the main effect of recession, 20% think deflation is the main effect ofrecession while others think bankrupt is the main effect and all 100% think by lowering theinterest rate by the Central bank help in over come from the recession. All 100% thinkrecession is bad for any economy and all 100% think Recession in developed countrys bringrecession in developing countrys .INTRODUCTIONRecession is negative economic growth for two consecutive quarters.How does the recession impact:1) SavingsIn a recession, private sector savings tend to rise. This is because people become morenervous to spend. The spectre of unemployment encourages people to save more and spendless. However, the rise in private sector saving may be offset by a fall in public sector saving(i.e. government borrowing increases to try and stimulate the economy)2) consumptionConsumption will tend to fall because people are worse off.3) InvestmentInvestment will fall. Usually investment is highly cyclical. Therefore, a recession causes aTopic: Impact of recession in India Page 7
  8. 8. SHARDA UNIVERSITYbigger % fall in investment than consumption. Confidence is very important to investment soin a recession, investment tends to dry up.4) Goverment spendingAutomatic fiscal stabilisers will cause government spending to rise. e.g. in recession,government have to spend more on unemployment benefits. Also the government may pursueexpansionary fiscal policy to try and increase aggregate demand e.g. spending oninfrastructure projects.5) Aggregate demandAggregate demand is falling in a recessionCONSEQUENCES OF US RECESSION ON INDIA JOB MARKETWorst affected because of US recession will be the service industry of India. Under serviceindustries come BPO, KPO, IT, ITeS etc. Service industry contributes about 52% to IndiasGDP growth. Now if that is going to get hurt then it will also hurt Indias overall growth butvery slightly. India is not going to face a major impact due to US recession. People may saythat there is going to be a huge job loss due to recession. and will cite the example of TCSfiring about 500 employees but these were employees who didn’t perform and for cost cuttingone have to reduce Non performing asset and that exactly what has been done. There is nothreat to the skilled people. According to NASSCOM India will have a shortage of about 5million skilled people in IT/ITeS. So there are lots of opportunities.This recession gives us opportunity to be innovative and to think out of box so that the USdirectly doesn’t affect our robust growth. Due to increasing Rupee exporters are having ahard time but it has been noted that our exporters are not that efficient and in past they got thebenefit of depreciating rupee. So now its time to be innovative and more effective andincrease the over all efficiency and go for systematic cost cutting to balance the rupee effect.Infact there are lots of scope for improvement. In West Africa goods at departmental storesare sold at the rate 5 times than Indian price and Indian goods are not exported to severalcountries in West Africa. It’s an excellent opportunity for our exporters.Topic: Impact of recession in India Page 8
  9. 9. SHARDA UNIVERSITYRECESSION AND POLITICSGenerally an administration gets credit or blame for the state of economy during its time. Thishas caused disagreements about when a recession actually started. In an economic cycle, adownturn can be considered a consequence of an expansion reaching an unsustainable state,and is corrected by a brief decline. Thus it is not easy to isolate the causes of specific phasesof the cycle.The 1981 recession is thought to have been caused by the tight-money policy adopted by PaulVolcker, chairman of the Federal Reserve Board, before Ronald Reagan took office. Reagansupported that policy. Economist Walter Heller, chairman of the Council of EconomicAdvisers in the 1960s, said that "I call it a Reagan-Volcker-Carter recession. The resultingtaming of inflation did, however, set the stage for a robust growth period during Reagansadministration.It is generally assumed that government activity has some influence over the presence ordegree of a recession. Economists usually teach that to some degree recession is unavoidable,and its causes are not well understood. Consequently, modern government administrationsattempt to take steps, also not agreed upon, to soften a recession. They are often unsuccessful,at least at preventing a recession, and it is difficult to establish whether they actually made itless severe or longer lasting.IMPACT OF AN AMERICAN RECESSION ON INDIAIndian companies have major outsourcing deals from the US. Indias exports to the US havealso grown substantially over the years. The India economy is likely to lose between 1 to 2percentage points in GDP growth in the next fiscal year. Indian companies with big ticketsdeals in the US would see their profit margins shrinking.The worries for exporters will grow as rupee strengthens further against the dollar. Butexperts note that the long-term prospects for India are stable. A weak dollar could bring moreforeign money to Indian markets. Oil may get cheaper brining down inflation. A recessioncould bring down oil prices to $70.Topic: Impact of recession in India Page 9
  10. 10. SHARDA UNIVERSITYThe whole of Asia would be hit by a recession as it depends on the US economy. Eventhough domestic demand and diversification of trade in the Asian region will partly counterany drop in the US demand, one simply cant escape a downturn in the worlds largesteconomy. The US economy accounts for 30 per cent of the worlds GDP.Says Sudip Bandyopadhyay, director and CEO, Reliance Money: "In the globalised world,complete decoupling is impossible. But India may remain relatively less affected by adverseglobal events." In fact, many small and medium companies have already started developingtrade ties with China and European countries to ward off big losses.Manish Sonthalia, head, equity, Motilal Oswal Securities, says if the US economy contractsmuch more than anticipated, the whole worlds GDP growth-which is estimated at 3.7 percent by the IMF-will contract, and India would be no exception.The only silver lining is that the recession will happen slowly, probably in six months or so.As of now, IT and IT-enabled services, textiles, jewellery, handicrafts and leather segmentswill suffer losses because of their trade link. Certain sections of commodities could facesharp impact due to the volatile nature of these sectors. C.J. George, managing director,Geojit Financial Services, says profits of lots of re-export firms may be affected. Countrieslike China import commodities from India do some value-addition and then export them tothe US.The IT sector will be the worst hit as 75 per cent of its revenues come from the US. Lowdemand for services may force most Indian Fortune 500 companies to slash their IT budgets.Zinnov Consulting, a research and offshore advisory, says that besides companies from ITeSand BPO, automotive components will be affected.During a full recession, US companies in health care, financial services and all consumersdemand driven firms are likely to cut down on their spending. Among other sectors,manufacturing and financial institutions are moderately vulnerable. If the service sector takesa serious hit, India may have to revise its GDP to about 8 to 8.5 per cent or even less.Lokendra Tomar, senior vice-president, Integreon, a BPO firm, says the US recession islikely to have a dual impact on the outsourcing industry. Appreciating rupee along with poorperformance of US companies (law firms, investment banks and media houses) will affect thebottom line of the outsourcing industry. Small BPOs, which are operating at a net margin of7-8 per cent, will find it difficult to survive.According to Dharmakirti Joshi, director and principal economist of CRISIL, along andsevere recession will seriously affect the portfolio and fixed investment flows. CorporatesTopic: Impact of recession in India Page 10
  11. 11. SHARDA UNIVERSITYwill also suffer from volatility in foreign exchange rates. The export sector will have todevise new strategies to enhance productivity.CONCLUSIONOver the past couple of months, fears of a slowdown in the United States of America haveincreased. The impact of the sub prime crisis along with a slowdown in mortgages has led toa significant lowering of growth estimates. Since the United States dominates the globaleconomy, any slowdown there would have an impact on most of the global economicvariables.For India, it could mean a further appreciation in the rupee Vis--Vis the US dollar and adarkening of business outlook for sectors dependent on US companies. The overall impact ofa US slowdown on India would, however, be minimal as the factors driving growth here aremore local in nature. Unlike the rest of Asia, India is a strong domestic demand story, so anyslowing in the US is likely to have a more muted impact on India. Strong growth in domesticconsumption and significant spending on infrastructure are the two pillars of India’s growthstory. No sector has a dominant influence on earnings growth and risks to our estimate arelimited. Corporate India is also learning to master the art of efficient capital management,reduction in costs and delivery of value-added services to sustain profit margins. Further,interest rates are expected to be stable primarily due to control over inflation and proactivemeasures undertaken by the RBI.RECOMMENDATIONFor knowing the causes of recession, effects of recession and how to over come from therecession. We made a questionare and give to 50 individuals and by this we come to know35% individuals think over production is the main cause of recession and remaing thingsunder consumption is the main cause of recession. 40% individuals think unemployment isthe main effect of recession, 20% think deflation is the main effect of recession while othersthink bankrupt is the main effect and all 100% think by lowering the interest rate by theCentral bank help in over come from the recession.Topic: Impact of recession in India Page 11
  12. 12. SHARDA UNIVERSITYAPPENDICESAfter analyze the result of questionare we come to know over production and underconsumption are the main causes of recession because of this unemployment, deflation etcare arise and for finish the recession from an economy Central bank plays a vital Impact of recession in India Page 12