Major Recessionary

Trends in India and Ways

to Overcome It
Presented by :
- Yogesh Kende
EMBA- ITM Kharghar
 Before, understanding
“Recession” we need to
understand the market
economy;
A] TWO STAGES OF MARKET ECONOMY

B] TWO FACTORS OF MARKET - DEMAND & SUPPLY

A] TWO STAGES OF MARKET ECONOMY

A1] Growing Market Economy

A2] Declining Market Economy

 A1] Growing Market Economy

Starting Point = Willingness to buy

 A2] Declining Market Economy
tarting Point = Unwillingness to buy
B] TWO FACTORS OF MARKET; - DEMAND & SUPPLY

oducer wants his demand always to be high

nsumer wants his buying cost always to be low
Actually, Demand is the price
at which consumer is ready
to buy and producer is
ready to sell;
Usually, we think;
Demand = Quantity
But, here Demand = Price;
This is because,
Price decides the Quantity of Sales;
Producer Price
Competitive Price = More Demand;
Consumer Price
In competitive Price = Less Demand
 C] What is Recession?

Recession is the economy shrinking for two

consecutive quarters (=6 months) with a
decrease in the GDP (=Gross Domestic Product)

GDP = Value of all the reported goods and services

produced by the people operating in the country

GDP = MONEY VALUE OF {C + I + G + (X – M)}

Consumables, I = Gross Investments, G = Government Spendin

X = Exports, M = Imports
 Note: If the recession continues for
next quarter, (>6 months) then we go
through “DEPRESSION” Economy;
There is a joke that economists quote to
explain the
Difference between “Recession &
Depression”
RECESSION

= WHEN YOUR NEIGHBOR LOSES HIS JOB

DEPRESSION

= WHEN YOU LOSE YOUR JOB

• A Recession is a contraction phase of the business
cycle.

• National Bureau of Economic Research (NBER) is

the official agency in charge of declaring that the
economy is in a state of recession.

• They define recession as :

• “significant decline in economic activity lasting more

than a few months, which is normally visible in real GDP,
real income, employment, industrial production, and
wholesale-retail sales”.
 D] Why Recession happens?

E2] LOW
E1] OVER
CONFIDENCE
PRODUCTION
LEVEL
E1] OVER
PRODUCTION

PSEUDO DEMAND
A situation in which
ACTUAL NEED WAS
NOT THERE;
the
WRONG PROJECTIONS supply exceeds the
nation’s
ability to consume
COMPANIES
PRODUCED what has
MORE been produced;

Supply > Demand

E2] LOW E2.1] Word of mouth
CONFIDENCE
LEVEL
E2.2] Assignable Cause

E2.1] Word of mouth

Low Confidence Consumers are fearing that

Level they may
of Millions of lose their jobs; So, they have
consumers and less
producers after confidence to spend money
they and buy
hear many job goods; This will result in
cuts, reduction
in demand in the market;
E2.2] Assignable Cause
Bad Incidences Happening;

Example: September 11 Terrorist Attack

in US;
International Airport block in
Thailand;
Mumbai Attacked in India;
etc…

Series of such incidences

leading into a kind of
Terrorists’ Attack on 11th September in US

Created fear in people

People cancelled their travel plans

Resulted in low occupancy rates

Airlines & Hotel Industries badly hit

Airline & Hotel Industries offered discounts,

gift coupons, to attract people
But, still, no improvement in occupancy
rate
Airline & Hotel Industries started CONTINUED
IN NEXT SLIDE
“Cost Reduction” activities
 Airline & Hotel Industries started
“Cost Reduction” activities

iii] Salary reduction to

i] Reduce No. of flights ii] Lay off people
“Not laid off people”

Low or No income to They became careful due

In flight meals reduced
spend and buy goods to the fear of loss of job

Meals supplying company Demand for other goods Started saving money
got the hit come down instead of spending

Catering company now, Demand for other goods

lays off people come down
o, you can see how the hit on Airline and Hotel
dustries can affect “Un-related” industries
the end;

ne industry can hit many other industries when the

onfidence level of millions of consumers & producers
astically comes down;
 E] US Crisis Hits
India
US faced major crisis because of –

• Subprime mortgage crisis (homeloan

defaults)
• Rising oil prices at $100 a barrel
• Global Inflation
• High unemployment rates
• A declining dollar value

All this slowed down the growth of the economy

and as the GDP growth rate fell to 2%,
recession set in.
 F] Impact on India

A slowdown in the US economy is bad news

for India because :

• Indian companies have major outsourcing

deals from the US
• India's exports to the US have also grown
substantially over the years.
• Indian companies with big tickets deals in
the US are seeing their profit margins
shrinking.
 G] How to know recession?

Indicators to say a nation is in recession;

- People buying less stuff

- Decrease in factory production
- Growing unemployment
- Slump in personal income
- An unhealthy stock market
 H] Anatomy of the economic
depression in India
SHARE MARKET
• More people have sold the shares in the
indian share market than they bought in
the recent weeks. This has added to the
fall of sensex to lower points.
• Foreign investors have pulled out from
stock markets leading to heavy losses in
stocks and mutual funds
• Stock broking houses are laying-off people
• Because of such uncertainty many people
have started saving money in banks rather
IT AND REAL ESTATE SECTOR
• The key challenges faced by the industry
now are inflation and the psychological
impact of the US crisis, leading the
companies to hit the panic button.
• Bonuses, perks, lavish parties, and many
other benefits are missing as companies
look to cut cost.
• India's IT export growth is also slowering
down
• One of the casualties this time are real
estate, where building projects are
half-done all over the country and in this
LAYOFFS AND UNEMPLOYMENT
• Hundreds of workers have lost jobs in
diamond jewellery, textiles and leather
industry.
• Companies in IT industry have stopped
hiring and projected lower manpower
need.
• Firms attached to the capital market are
laying off people and large companies are
putting their future expansion plans on
hold.
INDUSTRIAL SECTOR
• Government and other private companies
are reluctant in starting new ventures
and starting new projects.
• Projects that are halfway to completion, or
companies that are stuck with cash flow
issues on businesses that are yet to reach
break even, will run out of cash.
• Car, bike & truck sales down
• Steel plants are cutting production
• Hospitality and airlines are hit by poor
demand 
I] Opportunities in India due to
US recession
• US recession may be a boon for Indian offshore
software companies.

• The impact of recession is higher to small and

medium sized (SMEs) enterprises whose bottom
lines get squeezed due to lack of spending by
consumers.

• SMEs in the US are under severe pressure to

increase profitability and business margins to
survive. This will force them to outsource and even
have M&A arrangements with Indian firms.

• India is going to be a great beneficiary of this trend

which will minimize the impact of the US recession
on Indian industry.
 J] How to come out of recession?

It is unhealthy for any nation to be in Recession;

So, Government will take certain countermeasures
iminate or reduce the Effect of recession for turnaro
Important Point:
Today, it is a market Economy

Producers; Consumers;
Can produce and Can decide to
sell at their prices buy or not;

Both Producers and Consumers are free to act; Not a forced action
 Hence, Government does not have direct control
on Producers’ & the Consumers’ behavior; But, they
can influence millions of Producers & Consumers with
Government’s policies;
Government has 2 plans

Fiscal Policies Monetary Policies

(By Govt.) (By RBI)

Government influences the RBI manipulates

economy by changing how the available supply of
it (Government) spends money in the country
and collects money
 Government influences the
Fiscal economy by changing how it
Policies (Government) spends and
collects money
1] Tax cuts for More money
businesses or available for
for individuals spending

2] More Individuals get Demand picks

Spending by salary and spend up; Market
Govt. to create money
jobs can recover;
3] Automatic
fiscal policy; Some income to
Unemployme unemployed
nt Insurance people to spend
 Monetary Government manipulates the available supply
Policiesof money in the country
More money
1] Reduce reserve
available for
ratio
bank
to give loans
What is Reserve Ratio?
Demand picks
up; Market
Each bank has to keep a high % of their assets in
RBI (Reserve Bank of India). These assets do not
can recover;
earn any interest to banks. This money kept in
RBI is called “Reserves”; RBI sets certain ratio
of this reserves and it is called “Reserve Ratio”
 Monetary Government manipulates the available supply
Policiesof money in the country
1] Reduce reserve More money
ratio available for bank
to give loans

2] Lower the Individuals take

Demand picks
interest rates more loan up; Market
can recover;
 Monetary Government manipulates the available supply
Policiesof money in the country
1] Reduce reserve More money
ratio available for bank
to give loans

2] Lower the Individuals take

Demand picks
interest rates more loan up; Market
can recover;
3] Use its own It becomes an
reserved income to Govt.
money to buy to inject money
Govt. bonds into the market
 RBI’s Power or Government’s Power is double-edged
sword; Sometimes, their policies to recover from recession
can be counter-productive and it may further worsen the
situation;

e advise our people to save money, then, the multiplication effect is tha
demand will not pickup and recession will continue; Very peculiar!!!!! B
not misguiding you; Just think from a macro level, if everybody in the
untry stops spending, what will happen?

Nation’s recession is controlled by the actions of

everybody living
in that country;
 Currently, GDP Growth
Most of the developing
Slow Down Rate Down; But,
Economies like China,
Stage; Not yet Still expected to b
India;
in Recession Around 6% in Indi

Most of the developed

Economies like US, Currently, GDP Growth
Japan, Germany, etc in Recession Rate Negative;
 HOPING THIS TIME
RECESSION VANISHES
SOON SO THAT
INDIA GETS BACK
TO ITS STRONGER
GDP GROWTH RATE
OF 8% TO 10%
(THOUGH THE EXPERSTS
SAY IT WILL LAST TILL
Q3 OF 2009)