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Project Report


Impact of Recession in India


Introduction to recession Definition of recession Attributes of recession Causes & Effects of recession Stock Market & Recession Recession & Politics History of Recession Current crisis in the US Impact of recession in India Consequences of US Recession Conclusion Bibliography

Acknowledgement If words are considered to be sign of gratitude then let these words convey the very same. who has provide me with the necessary information and also for the support and her valuable suggestions and comments on bringing out this report in the best way possible. LIJI GEORGE . I am highly indebted to lecturer Mrs. clelia. I feel great pleasure to cordial thanks to all faculty members of management department of GEMS B SCHOOL who sincerely supported me with the valuable insights into the completion of this project and I am thankful to that power that always inspire me to take right step in the journey of success in my life.

financial sectors. according to the FIEO survey.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. especially the United States. IT industries. Some companies have laid off their employees and there have been cut in promotions. Our companies in India have most outsourcing deals from the US. Again. compensation and perks of the employees. garment and handicraft industry are worse affected. The one crore figure has been compiled by Federation of Indian Export Organizations (FIEO). There has been a significant drop in the new hiring which is a cause of great concern for us. The textile. Companies in the private sector and government sector are hesitant to take up new projects. The real estate has also a problem of tight liquidity situations. which says that it has carried out an intensive survey. is a very bad news for our country. Exports for January have declined by 22 per cent. it could be the result of inflation or a combination of increasing prices and stagnant economic growth in the west. Even our exports to US have increased over the years. real estate owners. There has also been a decline in the tourist inflow lately. There is a decline in the employment market due to the recession in the West. Federation of Indian . investment banking and other industries as well are confronting heavy loss due to the fall down of global economy. Together. car industry. where the developers are finding it hard to raise finances. Recession in the West. 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. they are going to lose four million jobs by April 2009.

it leads to severe depression. When a country is doing well all round its Gross Domestic Product (GDP) is on the rise. chemicals and jewellery had cut production by 10 per cent to 50 per cent. Recession means a slow down or slump or temporary collapse of a business activity. Recession is when the consumer faces foreclosure and the banker comes knocking for his pound (or dollar) of flesh. recession is a transitory phase. comprehensive definition of recession. An economist is likely to give a detailed. It profiles the businesses that have peaked with their activity in one season and it falls naturally in the next season. Unchecked. Experience helps to avert total collapse. it is not only the stock exchanges that tell riches to rags stories but even small businesses. textiles. In its early stage it can be controlled in a methodical manner. It is a total state of irrevocable economic failure. It is time to close shop completely. If you look at it from the point of view of a businessman. Overall economy is bullish.chambers of Commerce and Industry (FICCI) found that faced with the global recession. Definition of recession Recession is not to be confused with depression. gems. inventories industries like garment. Depression is a dead end. It all adds to the national exchequer. It regains its original position with new products or sales and continues to expand. But for the layman who has been affected knows it only one way-when he loses his job and has no money to pay his credit and loans. This revival makes the recession a mild phase that large companies tolerate. The Business Cycle Dating Committee of the National Bureau of Economic Research has another definition. Many companies and whole countries go bankrupt for want of liquid funds and cash flow for even daily requirements. As the fiscal position .

If a business survives a recession period they should be able to survive a depression. 2. Stronger companies will pull through its resources. as it tends to stabilize the prices. It allows run away bullish companies to slow down and take stock. there is no reason to worry. Those who remain clam till the storm passes.rises. at this time. If. When it happens year after year then it is serious. they will not be able to do well. The weaker companies will not survive the brief recession also. Recession can last up to a year. So when is it time to worry? When you are facing a foreclosure. they are not able to sustain their prices and stocks then there is more trouble. Those that have been able to save their funds. Are we facing a recession or not? Yes. ‘when it’s tough the tough get going’. when the chips are down and out and creditors file cases for recovery. There is a saying. for the simple reason that not only our neighbors but our friends are unemployed. There is less of business talk and more billing worries. 4. Transitory recessions are good for the economy. Even when the recession period gets over. Firms face closures when they go through recession and are not able to recover from losses. Those who have not invested in fly-by-night companies. But how many recession proof businesses are there? Who will eventually survive the recession? 1. 3. Those that take stock immediately and decide to reinvest in a recession proof business. .

employment (non-farm payrolls)." Almost universally.Identifying In a 1975 New York Times article. . policy makers. real personal income. and businesses defer to the determination by the NBER for the precise dating of a recession's onset and end. industrial production. and a recession is now often identified as the reduction of a country's GDP (or negative real economic growth) for at least two quarters. and wholesale-retail sales. academic economists. these included the rule of 'two successive quarterly declines in GDP. Attributes A recession has many attributes that can occur simultaneously and can include declines in coincident measures of activity such as employment.5% rise in unemployment within 12 months. In the United States the Business Cycle Dating Committee of the National Bureau of Economic Research (NBER) is generally seen as the authority for dating US recessions. Over time. Some economists prefer a more robust definition of a 1. and corporate profits. normally visible in real GDP growth. the other rules have been largely forgotten. investment. economic statistician Julius Shiskin suggested several rules of thumb to identify a recession. The NBER defines an economic recession as: "a significant decline in [the] economic activity spread across the country. A severe (GDP down by 10%) or prolonged (three or four years) recession is referred to as an economic depression. although some argue that their causes and cures can be different. lasting more than a few months.

Causes of recessions • • • • • • • Currency crisis Energy crisis War Under consumption Overproduction Financial crisis Price of Fuels Effects of recessions • • • • • Bankruptcies Credit crunches Deflation (or disinflation) Foreclosures Unemployment .

the average length has been 13 months. The real-estate market also usually weakens before a recession. . During an economic decline.7 months). There is a view termed the halfway rule according to which investors start discounting an economic recovery about halfway through a recession. There is significant disagreement about how health care and utilities tend to recover. Diversifying one's portfolio into international stocks may provide some safety. recessions since 1919. Siegel argues that it is not possible to take advantage of economic cycles for timing investments. growth stocks tend to recover faster. Since the business cycle is very hard to predict. Siegel mentions that since 1948. by a lead time of 0 to 13 months (average 5. economies that are closely correlated with that of the U.Stock market and recessions Some recessions have been anticipated by stock market declines.S. while ten stock market declines of greater than 10% in the DJIA were not followed by a recession. pharmaceuticals. ten recessions were preceded by a stock market decline. however. Even the National Bureau of Economic Research (NBER) takes a few months to determine if a peak or trough has occurred in the US. high yield stocks such as fast moving consumer goods. In Stocks for the Long Run. Thus if the 2008 recession followed the average.S. In the 16 U. may also be affected by a recession in the U. However real-estate declines can last much longer than recessions.S. although the recent recessions have been shorter. However when the economy starts to recover and the bottom of the market has passed (sometimes identified on charts as a MACD). and tobacco tend to hold up better. the downturn in the stock market would have bottomed around November 2008.

and its causes are not well understood. . They are often unsuccessful. and is corrected by a brief decline. Economist Walter Heller. however. chairman of the Council of Economic Advisers in the 1960s. The 1981 recession is thought to have been caused by the tight-money policy adopted by Paul Volcker. Consequently. at least at preventing a recession. before Ronald Reagan took office. It is generally assumed that government activity has some influence over the presence or degree of a recession. to soften a recession. chairman of the Federal Reserve Board. said that "I call it a Reagan-Volcker-Carter recession. also not agreed upon. and it is difficult to establish whether they actually made it less severe or longer lasting. Reagan supported that policy. modern government administrations attempt to take steps. The resulting taming of inflation did. set the stage for a robust growth period during Reagan's administration. Thus it is not easy to isolate the causes of specific phases of the cycle. Economists usually teach that to some degree recession is unavoidable. This has caused disagreements about when a recession actually started.Recession and politics Generally an administration gets credit or blame for the state of economy during its time. In an economic cycle. a downturn can be considered a consequence of an expansion reaching an unsustainable state.

However. According to economists. 1998 and 2001-2002. has encountered 32 cycles of expansions and contractions. with an average of 17 months of contraction and 38 months of expansion. since 1854. The IMF estimates that global recessions seem to occur over a cycle lasting between 8 and 10 years. the U. the U. and four periods considered recessions: • • • • January-July 1980 and July 1981-November 1982: 2 years total July 1990-March 1991: 8 months March 2001-November 2001: 8 months December 2007-current: 15 months as of March 2009 From 1991 to 2000. the longest period of expansion on record. By this measure.History of recessions Global recessions There is no commonly accepted definition of a global recession. . the NBER decision has approximately conformed to the definition involving two consecutive quarters of decline. three periods since 1985 qualify: 1990-1993. For the past three recessions. experienced 37 quarters of economic expansion. global per capita output growth was zero or negative. During what the IMF terms the past three global recessions of the last three decades. Economists at the International Monetary Fund (IMF) state that a global recession would take a slowdown in global growth to three percent or less. IMF regards periods when global growth is less than 3% to be global recessions. since 1980 there have been only eight periods of negative economic growth over one fiscal quarter or more.S.S.

000 jobs had been lost in September. U.S.6 million U. it was preceded by two quarters of alternating decline and weak growth. With consumer confidence so low. nine US states were declared by Moody's to be in a recession.". In November 2008 Employers eliminated 533.S. employers shed 63. jobs were eliminated. 2008 that "There is more than a 50 percent chance the United States could go into recession. Not only have consumers watched their wealth being eroded – they are now fearing for their jobs as unemployment rises. The 2008/2009 recession is seeing private consumption fall for the first time in nearly 20 years. the most in five years. For 2008. On October 1. the Bureau of Economic Analysis reported that an additional 156. have been hard hit by the current recession. Consumers in the U.000 jobs in February 2008.However the 2001 recession did not involve two consecutive quarters of decline. an estimated 2. Current recession in some countries Official economic data shows that a substantial number of nations are in recession as of early 2009. This indicates the depth and severity of the current recession. 2008. On April 29. United States The United States housing market correction (a consequence of United States housing bubbles) and sub prime mortgage crisis has significantly contributed to a recession. and 2008 saw many other nations follow suit.S. Although the US Economy grew in the first quarter by 1%. The US entered a recession at the end of 2007. by June 2008 some analysts stated that due to a protracted credit crisis and "rampant .000 jobs. Former Federal Reserve chairman Alan Greenspan said on April 6. with the value of their houses dropping and their pension savings decimated on the stock market. the largest single month loss in 34 years. recovery will take a long time.

was the largest since 1950. Other countries A few other countries have seen the rate of growth of GDP decrease. has been in a recession since December 2007 (when economic activity peaked).9% in the fourth quarter and 1. the recession has already been confirmed by experts.inflation in commodities such as oil. Australia. declines in personal income.4% decline in spending during Q3 on non-durable goods. A December 1. China.S. Canada. and declines in real GDP. food and steel". India along with China is experiencing an economic slowdown but not a recession. generally attributed to reduced liquidity. New Zealand and the Euro zone.1% in the first quarter of 2009. 2008.5% the biggest decline since 2001. 2008 report from the Federal Reserve Bank of Philadelphia based on the survey of 51 forecasters suggested that the recession started in April 2008 and will last 14 months. and the U. In some. based on a number of measures including job losses. They project real GDP declining at an annual rate of 2. Japan. report from the National Bureau of Economic Research stated that the U. A Nov 17.S. like clothing and food. while others are still waiting for the fourth quarter GDP growth data to show two consecutive quarters of negative growth. The third quarter of 2008 brought on a GDP retraction of 0. These forecasts represent significant downward revisions from the forecasts of three months ago. These include the United Kingdom. the country was nonetheless in a recession. The 6. . India. sector price inflation in food and energy. slowdown.

Major Banks have landed in trouble after people could not pay back loans. The housing market soared on the back of easy availability of loans.Current crisis in the US The defaults on sub-prime mortgages (home loan defaults) have led to a major crisis in the US. Foreclosures spread like wildfire putting the US economy on shaky ground. It was a decade of high unemployment. The trade market was brought to a standstill. low profits. low prices of goods. . Industries that suffered the most included agriculture. This. from 1930 to 1939. The realty sector boomed but could not sustain the momentum for long. and high poverty. which consequently affected the world markets in the 1930s. Sub-prime is a high risk debt offered to people with poor credit worthiness or unstable incomes. and it collapsed under the gargantuan weight of crippling loan defaults. coupled with rising oil prices at $100 a barrel. mining. slowed down the growth of the economy. Past recessions in the US The US economy has suffered 10 recessions since the end of World War II. The Great Depression in the United was an economic slowdown. and logging.

In 2001. The dot-com burst hit the US economy and many developing countries as well. The US saw one of its biggest recessions in 2001. ending ten years of growth.In 1937. Production declined sharply. This was followed by Black Monday in October 1987. The economy also suffered after the 9/11 attacks. In the 1990-91 recessions.6 per cent affecting the lives of millions of Americans.7 million. as did profits and employment. The US saw a recession during 1982-83 due to a tight monetary policy to control inflation and sharp correction to overproduction of the previous decade. The early 1990s saw a collapse of junk bonds and a financial crisis. The 2001 recession saw a 0. employment dropped by almost 1. the American economy unexpectedly fell. Unemployment jumped from 14. From March to November 2001.3 per cent in 1937 to 19.5 per cent from its peak in the second quarter of 1990. . the longest expansion on record. lasting through most of 1938.0 per cent in 1938. the GDP fell 1. when a stock market collapse saw the Dow Jones Industrial Average plunge by 22. investors' wealth dwindled as technology stock prices crashed.6 per cent decline from the peak in the fourth quarter of 2000.

Motilal Oswal Securities. Even though domestic demand and diversification of trade in the Asian region will partly counter any drop in the US demand. says if the US . But experts note that the long-term prospects for India are stable. The US economy accounts for 30 per cent of the world's GDP. complete decoupling is impossible. A recession could bring down oil prices to $70. many small and medium companies have already started developing trade ties with China and European countries to ward off big losses. The whole of Asia would be hit by a recession as it depends on the US economy. head. The India economy is likely to lose between 1 to 2 percentage points in GDP growth in the next fiscal year. But India may remain relatively less affected by adverse global events. India's exports to the US have also grown substantially over the years. director and CEO. Oil may get cheaper brining down inflation. Indian companies with big tickets deals in the US would see their profit margins shrinking. Reliance Money: "In the globalised world. A weak dollar could bring more foreign money to Indian markets. The worries for exporters will grow as rupee strengthens further against the dollar. Says Sudip Bandyopadhyay. Manish Sonthalia.Impact of an American Recession on India Indian companies have major outsourcing deals from the US. equity. one simply can't escape a downturn in the world's largest economy." In fact.

India may have to revise its GDP to about 8 to 8. If the service sector takes a serious hit. financial services and all consumers demand driven firms are likely to cut down on their spending. the whole world's GDP growth-which is estimated at 3. US companies in health care. probably in six months or so. Zinnov Consulting. handicrafts and leather segments will suffer losses because of their trade link. jewellery. Countries like China import commodities from India do some value-addition and then export them to the US. manufacturing and financial institutions are moderately vulnerable. The only silver lining is that the recession will happen slowly. C.5 per cent or even less. a BPO firm. Appreciating rupee along with poor performance of US companies (law firms.J. Certain sections of commodities could face sharp impact due to the volatile nature of these sectors. and India would be no exception. which are operating at a net margin of 7-8 per cent. managing director. investment banks and media houses) will affect the bottom line of the outsourcing industry. Corporates will also suffer from volatility in foreign exchange rates. IT and IT-enabled services. senior vice-president. says that besides companies from ITeS and BPO. Small BPOs. Among other sectors. As of now. The export sector will have to devise new strategies to enhance productivity. Low demand for services may force most Indian Fortune 500 companies to slash their IT budgets. Lokendra Tomar.economy contracts much more than anticipated. The IT sector will be the worst hit as 75 per cent of its revenues come from the US. says the US recession is likely to have a dual impact on the outsourcing industry. textiles. will find it difficult to survive. During a full recession. . automotive components will be affected. director and principal economist of CRISIL.7 per cent by the IMF-will contract. Integreon. a research and offshore advisory. According to Dharmakirti Joshi. George. says profits of lots of re-export firms may be affected. Geojit Financial Services. along and severe recession will seriously affect the portfolio and fixed investment flows.

So there are lots of opportunities. IT. This is again a good sign. Under service industries come BPO. Due to increasing Rupee exporters are having a hard time but it has been noted that our exporters are not that efficient and in past they got the benefit of depreciating rupee. tourism and power industry is going to grow at a better rate. People may say that there is going to be a huge job loss due to recession. . ITeS etc. Apart from this India's travel. India has a huge population so a huge consumer base so we don’t have to always depend on US for our growth. In West Africa goods at departmental stores are sold at the rate 5 times than Indian price and Indian goods are not exported to several countries in West Africa. It’s an excellent opportunity for our exporters. So now its time to be innovative and more effective and increase the over all efficiency and go for systematic cost cutting to balance the rupee effect. There is no threat to the skilled people. Now if that is going to get hurt then it will also hurt India's overall growth but very slightly.9 % which is again way above the growth rate of US and only second highest in the world after China.Consequences of US recession on India job market Worst affected because of US recession will be the service industry of India. Service industry contributes about 52% to India's GDP growth. This recession gives us opportunity to be innovative and to think out of box so that the US directly doesn’t affect our robust growth. According to NASSCOM India will have a shortage of about 5 million skilled people in IT/ITeS. India is not going to face a major impact due to US recession. and will cite the example of TCS firing about 500 employees but these were employees who didn’t perform and for cost cutting one have to reduce Non performing asset and that exactly what has been done. India's GDP is expected to grow at the rate of 8. Infact there are lots of scope for improvement. KPO.58.

vegetables and drinking water. AS EVERY business sector is affected by present global crisis and everybody is talking of slow down in business. the food processing industry in India was seeing growth even as the world was facing economic recession. Food No one can survive without basic food material like milk. But IKON Marketing Consultants reports that in India there are few sectors which will grow in this adverse situation. Further. 2. the industry is presently growing at 14 per cent against six to seven per cent growth in 2003–04. Let’s have a look. the retail food sector in India is likely to grow from around US$ 70 billion in 2008 to US$ 150 billion by 2025. every sector of business is being affected and is witnessing a hard time. 1. Food processing companies will not be affected much and rather will earn profits by increasing the prices.10 Indian industries to do well during recession In the current global economic slowdown. According to the minister. Railway As the aviation sector has been affect much badly and resulting in sharp rise in the air ticket rates the frequent travelers’ will prefer railways to cut the cost of traveling and this will result in increased traffic in railways and . still in India there are few sectors which will grow in this adverse situation. According to Ministry of Food Processing Industry (MFPI).The Indian food market is estimated at over US$ 182 billion and accounts for about two thirds of the total Indian retail market. These are the basic needs which we as a common man can not produce by our self.

While total earnings from freight increased by 14. More and more people are likely to turn towards government institutions.242. The railways have enhanced freight revenue by increasing its axle loading.long queues at railway booking counters. The railways registered 13. albeit at slow pace.81 per cent at Rs 16. indicating only marginal impact of the global recession on the Indian economy.3 per cent till 2011. PSU Banks As seen in the private sector much of the job cuts due to global slowdown.90 crore in the first nine months ended December 31. passenger revenue earnings were up 11.085. 3. The craze to study in foreign university among the Indian youth still alive which will prompt foreign education institute to target India provided vast young population willing to join. A report "Opportunities in Indian Banking Sector".22 crore during the period. particularly banks in the quest for safety and security. 4. by market research company. it’s the public sector undertaking (PSU) banks which gained much confidence due to job safety and security. We will see . 2008.53 per cent at Rs 39. The freight traffic of Indian Railways has continued to grow in the last few months. Education As education is considered as the basic necessity and in India it is seen as a long term investment by parents and with respect to the demand still there is a huge supply gap.87 per cent growth in revenue to Rs 57.863.44 crore. RNCOS. forecasts that the Indian banking sector will grow at a healthy compound annual growth rate (CAGR) of around 23. improving customer services and adopting an innovative pricing strategy.

Huge government as well as private investment is likely to flow into the Indian educational system. Telecom sector. year 2008 started with a subscriber base of 228 million and will likely to end with a subscriber base of 332 million – a full century. industries have to decrease the cost and for that they will resort to customised IT solutions which will further boost up the software solution demand. 6. The Indian telecommunications industry is one of the fastest growing in the world and India is projected to become the second largest telecom market globally by 2010. a US$ 36 billion. according to industry estimates. the industry is growing at an annual rate of 35 per cent and India’s outsourcing . The telecom industry expects to add at least another 90 million subscribers in 2009 despite of recession. India is fast becoming a hot destination for outsourced e-publishing work.more and more foreign educational institutions coming up in India in recent coming years. global private equity firm is planning to invest around US$ 200 million in the Indian education sector. IT Recent news shown that Indian IT sector will grow 30 to 40 per cent next year. And on the other side to survive in current slowdown. As per a Confederation of Indian Industry (CII) report. D E Shaw. 5. Telecom People will not stop to communicate with each other due to global crises rather it has been seen that it will increase much particularly with mobile communication. the sector has become the necessity and primary need of everyday life. With cheap cell phones available in the Indian market and cheaper call rates.

BMW are the most recent entrants). In health care sector also there is huge gap between demand and supply at all the levels of society. 7. which is a US$ 35 billion industry in India. 8. project management. M&A & Marketing Consultants As in the current business slow down survival will be the main focus. And in case of metros the market sentiments itself created a need of psychological consultation.opportunities in the value-added and core services such as copy editing. Healthcare.46 billion by 2010. Luxury products The high and affluent class of society will not be affected much by this global crises even if their worth is reduced significantly. Luxury car makers are pouring in to woo the nouveau riche (Audi. is expected to reach over US$ 75 billion by 2012 and US$ 150 billion by 2017. Still there are so many urban areas were you could hardly find any multi specialty hospital. 9. They will not change their lifestyle and will not stop spending on luxurious goods. media services and content deployment will help make the publishing BPO industry worth US$ 1. the marketing and management consultants will be called for to reduce the . indexing. Health care India in case of health care facilities still lakes the adequate supply. So luxurious product market will not be affected and in fact to maintain the lifestyle those affluent will spend more for it. The healthcare industry is interestingly poised as it strives to emerge as a global hub due to the distinct advantages it enjoys in clinical excellence and low costs.

costs and to show the ways to survive and stay in market. In a booming market there are growth strategies and M&A opportunities to advise on. the current size of consulting industry in India is about Rs 10000 crores including exports and is expected to grow further at a CAGR of aproximately 25 per cent in next few years. When businesses are cutting back. It is further likely to grow by 22 per cent over the next five years and be worth US$ 12. The TRP of religious channels will increase compare to the other entertaining/commercial channels. they will seek entertainment at home and hence advertising revenues will increase for the commercial channels. the television industry was worth US$ 5. 34 billion by 2012. Others may join hands to fight with this situation together will call for the Marketing & M&A consultants. religious channels will do well. According to Ministry of Commerce and Industry’s estimation. 48 billion in 2007. the Indian M&E industry is expected to grow at a compound annual growth rate (CAGR) of 18 per cent to reach US$ 23.81 billion by 2012. According to a report published by the Federation of Indian Chambers of Commerce and Industry (FICCI). According to the PWC report. consultancies will be right there to help clients decide where to wield the axe. . recording a growth of 18 per cent over 2006. Also businesses like production of religious texts and religious materials. where people are losing jobs and getting enough time to watch TV. 10. Media and Entertainment In current bad times.

Unlike the rest of Asia. be minimal as the factors driving growth here are more local in nature. . it could mean a further appreciation in the rupee Vis--Vis the US dollar and a darkening of business outlook for sectors dependent on US companies. Since the United States dominates the global economy. India is a strong domestic demand story. The impact of the sub prime crisis along with a slowdown in mortgages has led to a significant lowering of growth estimates. No sector has a dominant influence on earnings growth and risks to our estimate are limited. so any slowing in the US is likely to have a more muted impact on India. reduction in costs and delivery of value-added services to sustain profit margins.Conclusion Over the past couple of months. interest rates are expected to be stable primarily due to control over inflation and proactive measures undertaken by the RBI. Strong growth in domestic consumption and significant spending on infrastructure are the two pillars of India’s growth story. Further. fears of a slowdown in the United States of America have increased. any slowdown there would have an impact on most of the global economic variables. For India. however. Corporate India is also learning to master the art of efficient capital management. The overall impact of a US slowdown on India would.

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