impact of recession in india
- 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 - 2013 Topic: Impact of recession in India Page 1
- 2. SHARDA UNIVERSITY LETTER OF TRANSMITTAL Dear Ms. RimjhimTandon In the fulfilment of the requirement for the BBA degree course of the SHARDA UNIVERSITY we made this project .We carefully observed that 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 of demand of products, it could be the result of inflation or a combination of increasing prices and stagnant economic growth in the west. IT industries, financial sectors, real estate owners, car industry, investment banking and other industries 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 that situations thay are like food sector, railways sector , education sector etc. Yours sincerely Bikash singh Chirag garg Topic: Impact of recession in India Page 2
- 3. SHARDA UNIVERSITY ACKNOWLEDGEMENT If 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 necessary information and also for the support and her valuable suggestions and comments on bringing out this report in the best way possible. I feel great pleasure to cordial thanks to all faculty members of management department 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. Topic: Impact of recession in India Page 3
- 4. SHARDA UNIVERSITY INDEX Objective of the study Need of the study Causes of recession Effects of recession Research methodology Introduction Consequences of US recession on India job market Recession and politics Impact of an American Recession on India Conclusion Recommendation Appendices Bibliography Topic: Impact of recession in India Page 4
- 5. SHARDA UNIVERSITY OBJECTIVE 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 of demand of products. Again, it could be the result of inflation or a combination of increasing prices and stagnant economic growth in the west. Recession in the West, especially the United States, is a very bad news for our country. Our companies in India have most outsourcing deals from the US. Even our exports to US have increased over the years. There is a decline in the employment market due to the recession in the West. There has been a significant drop in the new hiring which is a cause of great concern for us. Some companies have laid off their employees and there have been cut in promotions, compensation and perks of the employees. Companies in the private sector and government sector are hesitant to take up new projects. 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. The one crore figure has been compiled by Federation of Indian Export Organizations (FIEO), which says that it has carried out an intensive survey. The textile, garment and handicraft industry are worse affected. There has also been a decline in the tourist inflow lately. The real estate has also a problem of tight liquidity situations, where the developers are finding it hard to raise finances. IT industries, financial sectors, real estate owners, car industry, investment banking and other industries as well are confronting heavy loss 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 its early stage it can be controlled in a methodical manner. Experience helps to avert total collapse. Unchecked, it leads to severe depression. Depression is a dead end. It is time to close shop completely. It is a total state of irrevocable economic failure. When a country is doing well all round its Gross Domestic Product (GDP) is on the rise. Overall economy is bullish; it is not only the stock exchanges that tell riches to rags stories but even small businesses. 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 it only one way-when he loses his job and has no money to pay his credit and loans. Recession is when the consumer faces foreclosure and the banker comes knocking for his pound (or dollar) of flesh. Many companies and whole countries go bankrupt for want of liquid funds and cash flow for even daily requirements .If you look at it from the point of view of a businessman, recession is a transitory phase. The Business Cycle Dating Committee of the National Bureau of Economic Research has another definition. It profiles the businesses that have peaked with their activity in one season and it falls naturally in the next season. It regains its original position with new products or sales and continues to expand. This revival makes 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 year then itserious. Topic: Impact of recession in India Page 5
- 6. SHARDA UNIVERSITY NEED OF THE STUDY : In a 1975 New York Times article, economic statistician Julius Shiskin suggested several rules of thumb to identify a recession; these included the rule of 'two successive quarterly declines in GDP. Over time, the other rules have been largely forgotten, 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. Some economists prefer a more robust definition of a 1.5% 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. The NBER defines an economic recession as: "a significant decline in economic activity spread across the country, lasting more than a few months, normally visible in real GDP growth, real personal income, employment (non-farm payrolls), industrial production, and wholesale- retail sales." Almost universally, academic economists, policy makers, and businesses defer to the determination by the NBER for the precise dating of a recession's onset and end. A recession has many attributes that can occur simultaneously and can include declines in coincident 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 Fuels EFFECTS OF RECESSION Bankruptcies Credit crunches Deflation Foreclosures Unemployment Topic: Impact of recession in India Page 6
- 7. SHARDA UNIVERSITY RESEARCH 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/No For knowing some data we made a questionare and give to 50 individuals and because of this we come to know 35% individuals think over production is the main cause of recession and remaining things under consumption is the main cause of recession. 40% individuals think unemployment is the main effect of recession, 20% think deflation is the main effect of recession while others think bankrupt is the main effect and all 100% think by lowering the interest rate by the Central bank help in over come from the recession. All 100% think recession is bad for any economy and all 100% think Recession in developed countrys bring recession in developing countrys . INTRODUCTION Recession is negative economic growth for two consecutive quarters. How does the recession impact: 1) Savings In a recession, private sector savings tend to rise. This is because people become more nervous to spend. The spectre of unemployment encourages people to save more and spend less. 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) consumption Consumption will tend to fall because people are worse off. 3) Investment Investment will fall. Usually investment is highly cyclical. Therefore, a recession causes a Topic: Impact of recession in India Page 7
- 8. SHARDA UNIVERSITY bigger % fall in investment than consumption. Confidence is very important to investment so in a recession, investment tends to dry up. 4) Goverment spending Automatic fiscal stabilisers will cause government spending to rise. e.g. in recession, government have to spend more on unemployment benefits. Also the government may pursue expansionary fiscal policy to try and increase aggregate demand e.g. spending on infrastructure projects. 5) Aggregate demand Aggregate demand is falling in a recession CONSEQUENCES OF US RECESSION ON INDIA JOB MARKET Worst affected because of US recession will be the service industry of India. Under service industries come BPO, KPO, IT, ITeS etc. Service industry contributes about 52% to India's GDP growth. Now if that is going to get hurt then it will also hurt India's overall growth but very slightly. India is not going to face a major impact due to US recession. People may say that there is going to be a huge job loss due to 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. There is no threat to the skilled people. According to NASSCOM India will have a shortage of about 5 million 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 US directly doesn’t affect our robust growth. 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. 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. Infact there are lots of scope for improvement. 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. Topic: Impact of recession in India Page 8
- 9. SHARDA UNIVERSITY RECESSION AND POLITICS Generally an administration gets credit or blame for the state of economy during its time. This has caused disagreements about when a recession actually started. In an economic cycle, a downturn 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 phases of the cycle. The 1981 recession is thought to have been caused by the tight-money policy adopted by Paul Volcker, chairman of the Federal Reserve Board, before Ronald Reagan took office. Reagan supported that policy. Economist Walter Heller, chairman of the Council of Economic Advisers in the 1960s, said that "I call it a Reagan-Volcker-Carter recession. The resulting taming of inflation did, however, set the stage for a robust growth period during Reagan's administration. It is generally assumed that government activity has some influence over the presence or degree of a recession. Economists usually teach that to some degree recession is unavoidable, and its causes are not well understood. Consequently, modern government administrations attempt 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 it less severe or longer lasting. IMPACT OF AN AMERICAN RECESSION ON 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. 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. Topic: Impact of recession in India Page 9
- 10. SHARDA UNIVERSITY The whole of Asia would be hit by a recession as it depends on the US economy. Even though domestic demand and diversification of trade in the Asian region will partly counter any drop in the US demand, one simply can't escape a downturn in the world's largest economy. The US economy accounts for 30 per cent of the world's 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 adverse global events." In fact, many small and medium companies have already started developing trade ties with China and European countries to ward off big losses. Manish Sonthalia, head, equity, Motilal Oswal Securities, says if the US economy contracts much more than anticipated, the whole world's GDP growth-which is estimated at 3.7 per cent 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 segments will suffer losses because of their trade link. Certain sections of commodities could face sharp 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. Countries like China import commodities from India do some value-addition and then export them to the US. The IT sector will be the worst hit as 75 per cent of its revenues come from the US. Low demand 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 ITeS and BPO, automotive components will be affected. During a full recession, US companies in health care, financial services and all consumers demand driven firms are likely to cut down on their spending. Among other sectors, manufacturing and financial institutions are moderately vulnerable. If the service sector takes a 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 is likely to have a dual impact on the outsourcing industry. Appreciating rupee along with poor performance of US companies (law firms, investment banks and media houses) will affect the bottom line of the outsourcing industry. Small BPOs, which are operating at a net margin of 7-8 per cent, will find it difficult to survive. According to Dharmakirti Joshi, director and principal economist of CRISIL, along and severe recession will seriously affect the portfolio and fixed investment flows. Corporates Topic: Impact of recession in India Page 10
- 11. SHARDA UNIVERSITY will also suffer from volatility in foreign exchange rates. The export sector will have to devise new strategies to enhance productivity. CONCLUSION Over the past couple of months, fears of a slowdown in the United States of America have increased. The impact of the sub prime crisis along with a slowdown in mortgages has led to a significant lowering of growth estimates. Since the United States dominates the global economy, any slowdown there would have an impact on most of the global economic variables. For India, 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. The overall impact of a US slowdown on India would, however, be minimal as the factors driving growth here are more local in nature. Unlike the rest of Asia, India is a strong domestic demand story, so any slowing in the US is likely to have a more muted impact on India. Strong growth in domestic consumption and significant spending on infrastructure are the two pillars of India’s growth story. No sector has a dominant influence on earnings growth and risks to our estimate are limited. 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 proactive measures undertaken by the RBI. RECOMMENDATION For knowing the causes of recession, effects of recession and how to over come from the recession. We made a questionare and give to 50 individuals and by this we come to know 35% individuals think over production is the main cause of recession and remaing things under consumption is the main cause of recession. 40% individuals think unemployment is the main effect of recession, 20% think deflation is the main effect of recession while others think bankrupt is the main effect and all 100% think by lowering the interest rate by the Central bank help in over come from the recession. Topic: Impact of recession in India Page 11
- 12. SHARDA UNIVERSITY APPENDICES After analyze the result of questionare we come to know over production and under consumption are the main causes of recession because of this unemployment, deflation etc are arise and for finish the recession from an economy Central bank plays a vital role. BIBLIOGRAPHY www.google.com Wikipedia Topic: Impact of recession in India Page 12