What Is Recession ?

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.

What Causes Recession ?

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 loose 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.

World Economy

The Global Economy

The world economy grew 5.2% in 2007

Powered by growth in China (11%), India (9%) and Russia (8%). The BRIC countries had been posting 7%-10% grow rates for years. Property and stock market booms. Investment was bringing economic development. Developing and less developed economies depend on the developed countries for their economic wellbeing.

What a difference a year makes??

The global economy has been hit by a rapid one-two punch that set the stage for stagflation to make a comeback. It started with the sub-prime crisis in the US.

 U.S.A Consumption based Economy. 2/3rd economic activity i.e. GDP

comes from consumers. Credit - free flowing for U.S consumers

Credit card loans for personal consumption

Auto loans for purchase of cars Home loans for purchase of houses

for years the prices of homes in the U.S. kept rising.

Result
Overconsumption/ Extravagant spending by the consumer

Thus

For years prices of homes in US kept rising

 Felt a need to Preserve capital. Therefore

Started tightening credit , Started restricting lending to the U.S consumer and businesses.
Since then

Loans became difficult to come by banks, Bank cut Credit card limits.

U.S. consumer significantly reduce spending.

 Reduced spending meant - reduced activity for most

businesses and consumers. businesses started to layoff workers (firing people as there was no work).

Because of layoff Unemployment started to rise which resulted in further reduction in spending by consumer.

Rising oil prices at $100 a barrel

Dollar value Stock market crashed Declined

 All this slowed down the growth of

economy.
GDP growth rate fell to 2%

All this put together has

driven the U.S. economy in recession.

In Feb, 63,000 jobs were lost.

In Sept, 159,000 jobs were lost, the 5 yr U.S

record.

In early July, depositors at Los Angeles offices of Indy Mac Bank lined up in the street to withdraw their money.
On July 11,Indy Mac - the largest mortgage lender in the US - was seized by federal regulators.

During the weekend of September 14-15, Lehman Brothers declared bankruptcy after failing to find buyers.

Bank of America agreed to purchase Merrill Lynch, & consortium of 10 banks created an emergency fund of at least $70 billion to deal with the effects of Lehman's closure.

On Sep 29, Citigroup beat out Wells Fargo to acquire the Wachovia's assets will pay $1 a share, or about $2.2 billion.

Another bank failure occurred on September 25 when JP Morgan Chase agreed to purchase the banking assets of Washington Mutual

 The year 2008 as of September 17 has seen 81

public corporations file for bankruptcy in the United States.

Lehman Brothers being the largest bankruptcy in

U.S. history also makes 2008 a record year in terms of assets with Lehman's $691 billion in assets all past annual totals.
The year also saw the ninth biggest bankruptcy

with the failure of Indy Mac Bank.

Other Famous who got bankrupt were, fannies

mae & Freddie Mac, aig, bearstearns etc.

IMPACT OF GLOBAL 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.

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.

 One danger meanwhile is of a dip in the

employment market. There is already anecdotal evidence of this in the IT and financial sectors, and reports of quiet downsizing in many other fields as companies cut costs.
Many companies has laid off their staffs, the

number of tourists inflow to india has come down, companies have cut down compensations and perks etc, government and other private companies are reluctant in starting new ventures and starting new projects etc.

 One of the casualties this time could be real estate, where

building projects are half-done all over the country and in this tight liquidity situation developers find it difficult to raise finances.
The only way out of the mess is for builders to drop prices, which had reached unrealistic levels and assumed the characteristics of a property bubble, so as to bring buyers back into the market, but there is not enough evidence of that happening.

Recession in jobs availiability and companies following downsizaing in the existing available staff and cutting down of the perks and salary corrections. Globally the financial sector sacking the existing base of employees

In high numbers in US the major example being CITI Group same still followed by others in hospitality industry Jet and Kingfisher Airlines too. The cut in salary for the pilots being 90 % can any one imagine such a huge cut in salary

For the first time in five years, Indias export growth has turned negative. Exports for October 2008 contracted by 15% on a year-on-year basis. This should not surprise as the OECD economies that account for over 40% of Indias export market have been slowing for months.

With the US and EU already entering a phase of recession, Indias export growth had to fall sharply. I must be noted this growth contraction has come after a robust 25%-plus average export growth since 2003. A low-to-negative growth in exports may continue for sometime until consumption revives in the developed economies.

A slowdown in export growth also has other implications for the economy. Close to 50% of Indias exports textiles, garments, gems and jewellery, leather and so on originate from the labour-intensive small- and mediumenterprises.

In summary, at the macro-level, a recession in the US may bring down GDP growth, but not by much. At the micro-level, specific sectors could be affected. Innovation now may prove to be the engine for growth when the next boom occurs.
For US firms, who have long looked at China as a better investment destination, this may be a good time to look at India as well. After all, 350 million people with purchasing power cannot be ignored. This is not a sales pitch for India, but only a gentle suggestion to US corporations.

A slowdown in the us economy is bad news for India because:

Indian companies have major outsourcing deals from the us. Indias export to the us also grown substantially over the years. Indian companies with big tickets deals in the us are seeing their profit margin shrinking.

Share market!

Most people have sold the shares.

Foreign investors have pulled out from stock market.
Stock broking houses are laying-off people.

People have started saving money.

IT & real estate sector

 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. Inflation and psychological impact of the us crisis. benefits are missing as companies look to cut cost. India's export growth is also slowering down. one of the casualties this time are real estate, where building projects are half done al over the country and in this tight liquidity situation developers find it difficult to raise finance.

Federation of Indian chambers of Commerce and Industry (FICCI) found that faced with the global recession, inventories industries like garment, gems, textiles, chemicals and jewellery had cut production by 10 per cent to 50 per cent.

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 stuck with cash flow issues on business that are yet to reach break even, will run out of cash.
Car, bike & truck sales down.

Steel plants also cutting production.

Hospitality and airlines are hit by poor demand.

 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 Organisations (FIEO), which says that it has carried out an intensive survey.
The textile, garment and handicraft industry are worse effected. Together, they are going to lose four million jobs by April 2009, according to the FIEO survey

Banking sector!

 Indian banks are facing through a tough time of

liquidity crunch. Lehman Brothers had invested a great amount in the stocks of Indian banks that have invested in derivatives.
A sudden fall in the economy directly affected

Lehman and Merill, eventually forcing them to file a bankruptcy.

Falling down of Lehman had a great impact on the

leading international bank, ICICI Bank, a bank that had invested in Lehmans bonds. This meltdown even have covered the Axis Bank but not to a great extent.

 Lehman Brothers had signed a partnership with some

of the real estate companies like Peninsula Land Ltd and DLF Assets. These have also suffered a heavy loss.
With all this, the Indian Sensex swung violently

downward, mainly because of the foreign companies pulling out credits to meet high inflations.
Central banks have worked to improve liquidity but

are charging higher credits. The interest rates have drastically increased from 11.5% to nearly about 16%.

 On the issue Mr. Manmohan Singh suggested-

A coordinated fiscal stimulus by countries that are in a position to do so would help to mitigate the severity and duration of the recession. It would also send a strong signal to investors around the world. resort to fiscal stimulus may be viewed as risky in some situation, but if we are indeed on the brink of the worst downturn since the great depression, the risk may be worth taking, he added.

CORRECTIVE

STEPS TAKEN TO CHECK

RECESSION

 RBI needs to neutralise the outflow of FII

money by unwinding the market stabilisation securities that it had used to sterilise the inflows when they happened.
This will mean drawing down the dollar

reserves which is important at this hour.

In the IT sector, there should be correction in salary offerings rather than job cutting.

 Public should spend wisely and save

more.
Taxes including excise duty and custom duty should be reduced to lighten the adverse effect of economic crunch on

various industries.
In real estate the builders should drop prices, so as to bring buyers back into the market.

 Also, the government should try and

improve liquidity , while CRR and SLR must be cut further.

Indian Companies have to adopt a multi-

pronged strategy, which includes diversification of the export markets, improving internal efficiencies to maintain cost competitiveness in a tight export market situation .

Policy rate (02-jan-2009)

 The Repo Rate has been cut by 50 bps to 5.5 % w.e.f.

November 03, 2008.

The SLR has been cut by 100 bps to 24.0 % w.e.f.

November 08, 2008.

The CRR has been cut by 100 bps in two stages.

First 50 bps cut w.e.f. October 25, 2008 and another 50 bps cut from November 08, 2008. The current
CRR is thus 5.5. The Cash Reserve Ratio (CRR) has been further cut by 50 basis points from 5.5 per cent to 5.0 per cent from the fortnight beginning January 17, 2009.

Reserve Ratios (2008) Cash Reserve Ratio 5%. Statutory Liquidity Ratio 24.0%.

Lending or Deposit Rates (2008) Prime Lending Rate 12.75%-13.25%. Saving Bank Rate 3.5% Deposit Rate 7.50%-10.75 .

Current economic scenario Impact of recession on India

Recession has grabbed almost all the

organisations of the world. Several people have lost jobs - facing the financial problems. Government - doing best to come out of the problem. Banks are providing business loans at low rate.

 Government - providing money

packages to organisations. If I talk about India, here the situation is still satisfactory if compare it with other countries of the world. Reserve bank of India (RBI) has decreased the rate of interest. SBI and ICICI are also providing different types of loans at a low rate of interest.

 Organisations are cutting cost to

stand in the market. Export businesses of India is going up. The real state was doing good business. But nowadays the condition of real state is still worse because of recession.

CONCLUSION

Acknowledgement
We are thankful to the people who have helped in the making of this presentation, These people include our parents, our own Rakhi maam and our friends.

Sources
www.google.com. www.wikipedia.com. Business line the magazine.

 ASHWINI GOHIL VISHAKHA MEHTA VANDANA DAKI MADHURI AGARWAL JINAY GANDHI BHAVYA SHETHIA ABHISHEK KUMAR

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