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INDEX

Contents Page No.


1. Introduction 5
2. Objectives 7
3. Hypothesis 8
4. Research Methodology 10
5. Limitations 14
6. Review of Related Literature 15
A) Recession in India 17
B) Recession 2008 19
C) Recession : India’s Prospects in 2009 21
D) Global Meltdown : Complete Coverage 23
E) Consumer Attitudes During Recession 27
F) What Causes It ? 29
G) Stock Markets & Recession 30
H) Impact Of A US Recession On India 30
I) What Has Hit India ? 32
J) Measures To Tackle Recession 33
7. Data Analysis & Interpretation 34
8. Conclusions 37
9. Suggestions 39
10. Bibliography 40
1
INTRODUCTION

A significant decline in activity across the economy,


lasting longer than a few months. It is visible in industrial
production, employment, real income and wholesale-retail trade.
The technical indicator of a recession is two consecutive
quarters of negative economic growth as measured by a
country's gross domestic product (GDP); although the National
Bureau of Economic Research (NBER) does not necessarily
need to see this occur to call a recession.

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. An economy, which grows over a period of time, tends to
slow down the growth as a part of the normal economic cycle.
An economy typically expands for 6-10 years and tends to go
into a recession for about six months to 2 years. A recession
normally takes place when consumers lose confidence in the
growth of the economy and spend less.

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This leads to a decreased demand for goods and services,
which in turn leads to a decrease in production, lay-offs and a
sharp rise in unemployment. Investors spend less; as they fear
stocks values will fall and thus stock markets fall on negative
sentiment. Risk aversion, deleveraging and frozen money
markets and reduced investor interest adversely affect capital
and financial flows, import-export and overall GDP of an
economy. This is exactly what happened in US and as a result of
contagion effect spread all over the world due to high
integration in the global economy.

“A period of general economic decline; typically defined


as a decline in GDP for two or more consecutive quarters. A
recession is typically accompanied by a drop in the stock
market, an increase in unemployment, and a decline in the
housing market. A recession is generally considered less severe
than a depression, and if a recession continues long enough it is
often then classified as a depression. There is no one obvious
cause of a recession, although overall blame generally falls on
the federal leadership, often either the President himself, the
head of the Federal Reserve, or the entire administration.”

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OBJECTIVES

• To know about Recession occurred in India.

• To know about impact of recession on India.

• To understand the causes of recession.

• To know how to measure or control over recession.

• To know about what has hit India during the time of


recession.

• To understand various problems faced by Indians during


the time of recession.

• To understand the customer attitudes at the time of


recession.

• To understand how India is hurt because of recession in


US.

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HYPOTHESIS

In empirical research, assertion made about some property


of elements being studied. Such an assumption is made early in
the investigation, guiding the investigator in searching for
supporting data.

The hypothesis is found to be true or false at the


conclusion of the research study, depending on whether or not
the proposed property actually characterizes the elements.

• One of the important problems faced by India is recession.

• Recession has hit India very hard due to which the


inflation rate is going higher and higher.

• The various problems were faced by IT industries during


recession such as unemployment.

• A recession normally takes place when consumers lose


confidence in the growth of the economy and spend less.

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• This leads to a decreased demand for goods and services,
which in turn leads to a decrease in production, lay-offs
and a sharp rise in unemployment.

• Investors spend less as they fear stocks values will fall and
thus stock markets fall on negative sentiment.

• The Indian stock markets also crashed due to a slowdown


in the US economy.

• Drop in global prices of tradable has reduced profitability


of local producers of these goods, and the viability of their
investment projects.

• India was a net importer of $92 billion of commodities in


2007-08 – so the global drop in commodity prices helps.

• Wealth effects on real estate and equities partially offset


by the rise in gold prices.

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RESEARCH METHODOLOGY

Research makes progress possible. Research is the


systematic design, collection, analysis and reporting of data.

Research comprises of defining and redefining problems,


formulating hypothesis, collecting, organising, evaluating data,
making education and reaching to conclusion whether they fit
into the formulation of hypothesis.

Generally the research is considered as an endeavor to


arrive at the answers to intellectual and practical problems
through the application of scientific methods to the knowledge
universe. It is the movements from known to unknown.

In this chapter, I have covered all the related aspects that


come under the term of research and methodology adopted.

It has covered all the research which is being out and all
the methods which are used, how they are being adopted to seek
of the desired objectives.

The methods and research of its conduct are utilized in this


chapter that can be seen.

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1. Research Work :

Research in the field of commerce has been classified into


two different types this two types are :

a) Fundamental Research.

b)Applied Research.

2. Sampling :

It is also divided into parts. They are as under.

i) Census Survey :

ii)Sample Survey :

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Methods of Data Collection

Data collection is the process by which quantitative and


qualitative data or record is collected according to the objectives
of the study.

Collection of data refers to a purposive gathering of


information relevant to the subject matter under study and the
methods used depends mainly on the nature, purpose and scope
of the enquiry to be undertaken, as well as on the availability of
resources and time.

There are basically two types of data, they are :

1) Primary Data.

2) Secondary Data.

This project is only on the basis of secondary data.

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Secondary Data :

Secondary data are those which have been already


collected by others. When it is not possible to collect data in
primary form. The researcher may take the help of secondary
data.

They are those which have already been collected with


some other view in mind. They are collected for serving the
objectives other than what the researcher might have in his
mind.

The sources of secondary data include :

 BOOKS.

 WEBSITES.

 JOURNALS.

 MAGAZINES.

 NEWSPAPER.

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 INTERNET

LIMITATIONS

• As the project is based on Secondary data it is difficult to


get accurate data or information of the current scenario.

• It’s difficult to forecast about the future prospects on the


basis of Secondary data.

• The greatest challenge is to know the current state of the


economy.

• Because of the stipulated time given for the completion of


the project, it becomes very difficult to get more and more
information about the topic.

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REVIEW OF RELATED LITERATURE

The economic slowdown of the advanced countries which


started around mid-2007, as a result of sub-prime crisis in USA,
led to the spread of economic crisis across the globe. Many
hegemonic financial institutions like Lehman Brothers or
Washington Mutual or General Motors collapsed and several
became bankrupt in this crisis. According to the current
available assessment of the IMF, the global economy is
projected to contract by 1.4 per cent in 2009.

Even as recently as six months ago, there was a view that


the fallout of the crisis will remain confined only to the financial
sector of advanced economies and at the most there would be a
shallow effect on emerging economies like India. The contagion
has traversed from the financial to the real sector; and it now
looks like the recession will be deeper and the recovery longer
than earlier anticipated. Many economists are now predicting
that this ‘Great Recession’ of 2008-09 will be the worst global
recession since the 1930s.

During 2008 and 2009 the global economy was rocked by


soaring food and fuel prices, the collapse of global financial

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markets, and a severe contraction in world economic demand.
Global economic growth declined from 5.2 per cent in 2007 to a
forecast -1.1 per cent in 2009. The crisis also caused a
significant change in the prospects of developing countries.
Economic growth in developing countries in 2009 is projected
to be 1.7per cent. This is substantially lower than the observed
growth rate of 8.3per cent in 2007.

The global recession has caused reduced global demand


for the region’s main exports—manufacturing, commodities and
tourism. This has had a substantial impact on the economies of
Asia and the Pacific. An example of the impact on
manufacturing is Cambodian clothing exports to the US—its
largest market—dropped by 27 per cent in the first 5 months of
2009 from the corresponding period of 2008.

There have been similar falls in exports observed in China,


Indonesia and Lao PDR. The crisis has also depressed demand
for commodities and led to a sharp decline in world prices for
minerals and energy since the record highs of mid-2008. The
World Bank observed that by December 2008, crude oil prices
had dropped to $41 a barrel, down more than 70 percent from
the July 2008 peaks, while non-energy commodity prices
declined by nearly 40 percent over 2008.

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RECESSION IN INDIA

Global economic meltdown has affected almost all


countries. Strongest of American, European and Japanese
companies are facing severe crisis of liquidity and credit. India
is not insulated, either. However, India’s cautious approach
towards reforms has saved it from possibly disastrous
implications. The truth is, Indian economy is also facing a kind
of slowdown. The prime reason being, world trade does not
functions in isolation. All the economies are interlinked to each
other and any major fluctuation in trade balance and economic
conditions causes numerous problems for all other economies.

According to official data, industrial growth in august has


plummeted to mere 1.3% compared to the same month in 2007.
That definitely is cause of concern for policy makers and
industries. This data also raised fear of low GDP growth of
India.

It is being suspected that, our country will face huge


problems in achieving even 7.5% growth rate in this fiscal.
1.3 percent industrial growth is the lowest IIP (index of
industrial production) data ever registered since last ten years.
April-august industrial growth rate is 4.9% which is also the
lowest for the first five months of a financial year in 14-year

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period except 1998 and 2001. To make matters worst, a member
of the PM’s economic advisory council and director of the
National Institute of Public Finance and Policy have confessed
that India is going through industrial recession.

Several crucial sectors of Indian economy are likely to


face serious problems in coming months. Foremost among them
is real estate sector. The demand for houses have reduced
significantly and property prices across India has registered 15-
20% fall. Things are likely to get worst as another 20 percent
drop in prices is quite possible in coming six months. The woes
of real estate have spread to construction industry as well.
Because of less demand for houses, construction companies are
going to suffer big time. Financial services segment is also
likely to be a major victim of economic slowdown because of
less demand for credit and reduced liquidity in market.

These three segments account for almost one third of


services GDP and because of their current and impending plight,
attaining 7.5% GDP growth in this current year is quite
improbable. Industrial slowdown will also affect transport
services. Transport companies are likely to witness drastic fall in
their business and profits. Global recession will also lead to less
tourists coming to India. That will negatively affect tours and
travels industry.

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RECESSION 2008

Most of the world’s stock markets in late 2007 and early


2008 were touching sky. Even Indian stock market made hay
while the sun shone on its horizon. Speculation was rife in many
corporate headquarters that, this over exuberance and huge flow
of money does not justify stock indices of several countries.
There were signals of herd mentality and greed looming all
over. Those signals finally came to life in early 2008. It started
with IMF prediction of world growth falling to 4.0 percent from
4.9 percent. 4.0 was still a respectable prediction but that
announcement was changed just after two months.

USA is a dominant force in world economy and as per data


it represents 21 percent of the world economy. Changing
economic statistics pointed towards a possible USA recession
and that signified a global downtrend in economic cycle because
of domineering impact of American economy. Many countries,
particularly developing ones are heavily dependent on USA and
a hint of slowdown in America spelled doom for them. The
average spending of American consumers reduced significantly
and that resulted in reduced demand for imported items.

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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. That fuelled global inflation to a dangerous mark. 2008
also witnessed unprecedented credit crisis across the world
which resulted in closure of several established investment
banks.

Things started getting worst with U.S. subprime-mortgage


market. This induced a tremendous housing market correction of
huge implications for pushing up credit costs worldwide.
Because of this correction, a good number of Americans,
European and Asian banks had to write down billions of dollars
in holdings. In fact, few banks filed for bankruptcy and that
includes name like Lehman Brothers. It was biggest ever
bankruptcy case in US history. More than 81 companies have
filed for bankruptcy in USA.

Unemployment rate also increased substantially in USA


and many people had to leave job. Another 1, 57, 000 jobs were
lost in September 2008. Many developed and developing
countries are struggling with low GDP and decreasing economic
growth. Credit crunch has spread all over the world. However,
world over, policy makers are putting in extra liquidity and

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several other measures to stem the fall but nevertheless, we
seem to be going through economic recession.

RECESSION : INDIA'S PROSPECTS IN 2009

The global financial and economic crisis keeps getting


worse. A couple of weeks back the giant Citibank had to be
bailed out with several hundred billion dollars in cash and
guarantees from the US authorities.

Last week America reported November job losses of more


than 530,000, the biggest single month figure since 1974, taking
the US unemployment rate to 6.7 percent, the highest in 15
years.

The US, Eurozone, UK and Japan are now officially in


recession, in the sense of having experienced two successive
quarters of negative growth. Several analysts predict that the
rate of contraction of the US economy in this final quarter of
2008 may be at an astonishing annual rate of 4 to 5 percent.

Similar pessimism pervades the other two largest


economies in the world: Europe and Japan. There is enormous
uncertainty about the depth and duration of the current global
recession. But the majority of expert opinion now concedes a

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substantial likelihood that this will be the worst recession since
the Great Depression of the 1930s.

Both the severity of the financial crisis and its massive


collateral damage to the real economy has confounded the
optimists over the past year. Quite often, experts claimed that
"the worst of the financial crisis is behind us", only to be bush-
whacked by the next big bail-out or credit seizure.

Equally remarkable, and much worse in impact, has been


the speed at which the cumulating financial crisis has throttled
real economic activity since summer 2008. The rapid onset of
recession in industrial (advanced) countries has clearly
overwhelmed the forecasting abilities of many institutions,
including the IMF.

As recently as July this year, the IMF foresaw the world


economy growing at 3.9 percent in 2009, advanced economies
at 1.4 percent and developing countries at 6.7 percent. By early
November (just four months later) these forecasts had been
slashed down to 2.2 percent, minus 0.3 percent and 5.1 percent,
respectively.

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Global meltdown: Complete coverage

For its projections of US economic growth in 2009, the


IMF swung from plus 0.8 percent in July to minus 0.7 percent in
November! And it's a safe bet that if the IMF were making a
fresh set of projections for 2009 today, all these numbers would
look even worse. Nor does the recent "advance release" of the
global outlook for 2009 by UNCTAD provide any succor. Like
the IMF, the UNCTAD foresees global growth at just over 2
percent in 2009 at PPP weights and at only 1 percent at market
exchange rates. The latter number means that global growth in
2009 is expected to be at only about a quarter of the pace
enjoyed in 2006 and 2007.

Both institutions forecast severe damage to world trade,


which is expected to expand at only 2 percent in 2009 as
compared to over 9 percent in 2006 and 7 percent in 2007. For
the Asian giant, China, both the IMF and UNCTAD expect
growth to slow to about 8.5 percent in 2009 from the scorching
12 percent pace of 2007. Interestingly, several China-based
analysts foresee much sharper deceleration.

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What about India? How bad will it get for us? The official
estimates of GDP growth for the first two quarters of 2008/9
stayed above 7.5 percent. However, industry-wide indications
after September are uniformly gloomy. There are reports of
significant declines in output of automobiles, commercial
vehicles, steel, textiles, petrochemicals, construction, real estate,
finance, retail activity and many other sectors.

Exports fell by 12 percent in dollar terms in October and


advance information points to a similar decline in November.
After September, the economy seems almost to have gone over
a cliff.

When available, the official data are likely to record a


sharp slowdown in the second half of the year, possibly steep
enough to drag full year growth in 2008/9 to below 7 percent.
What's more, given the strongly recessionary conditions
expected to prevail in the world economy in 2009, there is no
prospect of a quick turnaround in India. Indeed, on a tentative
basis.

What about economic policy? Can we not deploy


monetary, fiscal and exchange rate policies to insulate our

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growth momentum from adverse external conditions? The short
answer is: only to a limited degree. I outlined the main
arguments last fortnight (BS, November 27).

Monetary policy had already been aggressively loosened


by early November and the RBI provided a further, well-
balanced package last Saturday, notably including a 1 percent
cut in the repo and reverse repo rates.

Given the continued high rate of CPI inflation through


October (latest data) and, perhaps more significantly, recent
pressures on the exchange rate, the present scope for further
policy rate reductions appears limited.

The situation might change if external imbalances improve


if a falling oil import bill and slowing non-oil imports outweigh
the drop in export earnings and if capital flows stabilize.

On the fiscal front, the government had pretty much


exhausted the available fiscal space through its record Rs
237,000 crore (4.5 percent of GDP) supplementary demand in
October. Though undertaken for quite different reasons, its
timing may turn out to be quite fortunate.

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Against this background the government was wise to limit
last Sunday's "fiscal stimulus" to a modest affair, totaling only
about Rs 30,000 crore (Rs 300 billion), out of which two-thirds
was for "additional plan expenditure", which may not be fully
spent this fiscal year.

It may be far more important to actually spend the already


budgeted plan expenditure effectively. If international oil and
fertilizer prices stay at present levels, implying low or negligible
subsidy rates (looking ahead) on price-controlled domestic sales,
then there may be a case for a larger stimulus next year. Much
will depend on the trajectory of revenues and other expenditures
in a slowing economy.

While such unprecedented monetary loosening and


massive supplementary expenditures will definitely help, they
will not fully neutralize the negative impact of the severe global
financial and economic crisis on India's exports, investment and
consumption.

With over 60 percent of global GDP having toppled into


recession, a significant deceleration of India's economic growth
is simply unavoidable. After all, we share the same planet as
America, Europe and Japan (and a rapidly slowing China).

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In this context a 6 percent economic growth in 2009/10
will be pretty good...if we achieve it.

CONSUMER ATTITUDES DURING RECESSION

During recessionary periods, individuals aren't able to


spend as much money on high-tech gadgets or big-ticket items,
such as cars or high end electronics; instead, people tend to put
their dollars toward necessities, such as food or utilities.

In addition, according to a McGraw-Hill study of


advertising performance, companies that can afford to advertise
will win consumers at the local markets, regardless of brand
name recognition pre-recession, making them strong contenders
for your portfolio.

According to a McGraw-Hill study of advertising


performance, "business-to-business firms that maintained or
increased their advertising expenditures during the 1981-82
recession averaged significantly higher sales growth both during
the recession and for the following three years than those that
eliminated or decreased advertising".

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In addition, Market Sense compared 101 household name
brands during the recessionary period 1989-1991 are as
follows :-

Jell-O, Crisco, Hellman's, Green Giant and Doritos saw


sales drop by as much as 26-64%.

Jiff peanut butter raised ad support and sales went up 57%.

Kraft salad dressings saw a rise of 70%.

In the beer category, overall spending was down 1% while


Bud Light and Coors Light, each spending ahead of the
category, saw sales increases of 15% and 16% respectfully.

Pizza Hut sales rose 61% and Taco Bell's 40% thanks to
strong advertising support, with McDonald's volume down
approximately 28%.

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WHAT CAUSES IT?

An economy which grows over a period of time tends to


slow down the growth as a part of the normal economic cycle.
An economy typically expands for 6-10 years and tends to go
into a recession for about six months to 2 years.

A recession normally takes place when consumers lose


confidence in the growth of the economy and spend less.

This leads to a decreased demand for goods and services,


which in turn leads to a decrease in production, lay-offs and a
sharp rise in unemployment.

Investors spend less as they fear stocks values will fall and
thus stock markets fall on negative sentiment.

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STOCK MARKETS & RECESSION

The economy and the stock market are closely related. The
stock markets reflect the buoyancy of the economy. In the US, a
recession is yet to be declared by the Bureau of Economic
Analysis, but investors are a worried lot. The Indian stock
markets also crashed due to a slowdown in the US economy.

The Sensex crashed by nearly 13 per cent in just two


trading sessions in January. The markets bounced back after the
US Fed cut interest rates. However, stock prices are now at low
ebb in India with little cheer coming to investors.

IMPACT OF A US RECESSION ON INDIA

A slowdown in the US economy is bad news for India.


Indian companies have major outsourcing deals from the US.
India's exports to the US have also grown substantially over the
years. The India economy is likely to lose between 1 to 2
percentage points in GDP growth in the next fiscal year. Indian
companies with big tickets deals in the US would see their profit
margins shrinking.

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The worries for exporters will grow as rupee strengthens
further against the dollar. But experts note that the long-term
prospects for India are stable. A weak dollar could bring more
foreign money to Indian markets. Oil may get cheaper brining
down inflation. A recession could bring down oil prices to $70.

Between January 2001 and December 2002, the Dow


Jones Industrial Average went down by 22.7 per cent, while the
Sensex fell by 14.6 per cent. If the fall from the record highs
reached is taken, the DJIA was down 30 per cent in December
2002 from the highs it hit in January 2000. In contrast, the
Sensex was down 45 percent.

The whole of Asia would be hit by a recession as it


depends on the US economy. Asia is yet to totally decouple
itself (or be independent) from the rest of the world, say experts.

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WHAT HAS HIT INDIA ?

• Drop in global prices of tradable has reduced profitability


of local producers of these goods, and the viability of their
investment projects.

• Most firms were betting on INR appreciation; the sudden


INR depreciation has given losses.

• Watching the global crisis has led to a loss of confidence.

• Wealth effects owing

• India was a net importer of $92 billion of commodities in


2007-08 – so the global drop in commodity prices helps.

• Wealth effects on real estate and equities partially offset


by the rise in gold prices.

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MEASURES TO TACKLE 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.

• The oil prices decline will also have a positive impact on


the importers.

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DATA ANALYSIS AND INTERPRETATIONS

Due to the crisis, 11 more million people in East Asia and the
Pacific will be in poverty in 2009 (Millions)

This graph uses vertical bars that span the entire layer, to
indicate periods of recession.

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This graph shows the unemployment rate of civilians.

The slope of that line is definitely scary. If jobs keep being


lost at that rate for the next quarter I’d guess we’re in for a
whole lot of trouble.

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33
CONCLUSIONS AND SUGGESTIONS

CONCLUSIONS

• According to me there was a little bit impact of recession


on India.

• Mostly the IT industries in India suffer a lot.

• According to the study there was very little impact of US


recession on India.

• According to the study it is clear that there are certain


measures that can be used to control recession.

• According to the study it is shown that during the time of


recession the consumer’s lose their confidence and started
to spend less.

• During recession the main problem was the unemployment


and many of the employees were sacked.

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• During recession Investors also spend less in the industries
and this was also one of the main problems faced by
various industries like IT industries, etc.

• During recession there was inflation in the prices of most


of the products and services.

• During recession the IT industries were not getting


projects to work and therefore they suffered a lot due to
recession.

• Because of recession in US there was a little impact on


India also but the condition was not worst like that in US.

• According to the study there was the impact of recession


on whole Asia as it depends on the US economy and is yet
to be independent from rest of the world.

• During recession because of the slowdown in the US


economy the Outsourcing industries of India suffers a lot
as the Indian companies have the major outsourcing deals
from the US.

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SUGGESTIONS

• Government should try to create more employment


opportunities.

• Government should try to spend more to boost the


manufacturing sectors in the country.

• To overcome recession Government should try increase


export as compared to the previous or initial export.

• Government should cut taxes during slump as it helps to


some extent to overcome recession.

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BIBLIOGRAPHY

http://www.google.com

http://www.scribd.com

http://www.wikipedia.com

http://www.rediffmail.com

http://www.investopedia.com

http://www.investorwords.com

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