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IMPACT OF GLOBAL

RECESSION ON INDIA
PRESENTATION

MADE BY: Rahul Buragohain (006)


MBA 1ST SEMESTER
NIEC

MANAGERIAL ECONOMICS
 Indiancompanies have major outsourcing deals
from the US.

 India's
exports to the US have also grown
substantially over the years.

 Morepeople 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
For the first time in five years, India’s 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 India’s export market have
been slowing for months.

With the US and EU already entering a phase of


recession, India’s export growth had to fall sharply.
It 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 India’s
exports — textiles,
garments, gems
and jewellery,
leather and so on
— originate from
the labour-
intensive small-
and medium-
enterprises.
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.
 India’s 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!
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 Lehman’s 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
Recessio
n
 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 RATES
The Repo Rate has been cut by 50 bps to 5.5 %
w.e.f. November 03, 2008.

The SLR hasbeen 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.
Sources
www.google.com.
www.wikipedia.com.
Businessline – the
magazine.

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