RECESSIONS are 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.

Definition of RECESSION
The state of the economy declines; a widespread decline in the GDP and employment and
trade lasting from six months to a year.
In macroeconomics, a recession is generally associated with a decline in a country's real gross
domestic product (GDP), or negative real economic growth, for two or more successive
quarters of a year. RECESSIONS are the result of reduction in the demand of products in the
global market.
Recession is not to be confused with depression. Recession means a slow down or temporary
collapse of a business activity. Depression is a dead end. It is time to close shop completely.
When a country is doing well all round its Gross Domestic Product (GDP) is on the rise.

Attributes
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.

A severe (GDP down by 10%) or prolonged (three or four years) recession is referred to as an
economic depression, although some argue that their causes and cures can be different.

Current recession in US
Official economic data shows that a substantial number of nations are in recession as of early
2009. The US entered a recession at the end of 2007, and 2008 saw many other nations follow
suit.

The defaults on sub-prime mortgages (home loan defaults) have led to a major crisis in the
US. Sub-prime is a high-risk debt offered to people with poor credit worthiness or unstable
incomes. Major Banks has landed in trouble after people could not pay back loans.

The 2008/2009 recessions is seeing private consumption fall for the first time in nearly 20
years. This indicates the depth and severity of the current recession. With consumer
confidence so low, recovery will take a long time. Consumers in the U.S. have been hard hit
by the current recession, with the value of their houses dropping and their pension savings
decimated on the stock market. Not only have consumers watched their wealth being eroded –
they are now fearing for their jobs as unemployment rises.

Other countries
A few other countries have seen the rate of growth of GDP decrease; generally attributed to
reduced liquidity, sector price inflation in food and energy, and the U.S. slowdown. These
include the United Kingdom, Europe, Canada, Japan, Australia, China, India, New Zealand
and the Euro zone. India along with China is experiencing an economic slowdown but not a
recession.

Impact on India
Recession in the West, especially the United States, is a very bad news for our country. 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 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. 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.

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.

How India escape from Ill effects of Recession

The Indian economy had been growing, and its banking sector remains resilient, in the
midst of the worst economic downturn since the Great Depression. So how did the
country continue to prosper? Low exports, an expanding middle class, and a very
conservative, government-dominated banking system, that’s how.
Naina Lal Kidwai, group general manager and country head of the HSBC Group in India,
says that growth in the country’s gross domestic product has slowed amid the global
breakdown, easing from an average 8.6 percent growth in the past four years to 6.0-6.5
percent now. “But the fact is, we have avoided recession,” she notes in an interview.
And growth could top 8 percent in 2010.

1. Sound banking System

India escaped the direct adverse impact of the Great Recession of 2008-09, since its financial
sector, particularly its banking System, is very weakly integrated with global markets and
practically unexposed to mortgage-backed securities.
The Indian banking system is one of the least affected in the whole world and has been praised
by many of the economists, financial experts. For example one of the banks Washington
Mutual (WaMu) went bankrupt and was one of the biggest bank failures in the history but not
even one Indian bank went to the extent of bankruptcy except there was a panic in many
customers that the ICICI bank was getting bankrupt and as result of that the people stood in
front of the ATM overnight to withdraw money. The banks were saved from this downturn
because of the financial policies, which were very well formulated, which acted as an insulator
for the Indian banks. If we want to be insulated from the side effects of recession then we also
need to have a good financial plan in place and need to make the necessary changes so as to
overcome the new obstacles thrown in by the recession.

2. Fiscal Monetary policy

Indian economy has sustained a higher growth rate than most of the economies in the rest of
the world primarily because growth of the Indian economy has been driven by high levels of
aggregate domestic demand (including strong rural consumption demand). Global demand for
Indian goods and services declined sharply during 2008-09. This is reflected in the decline in
the growth of exports from 23.2% in quarter 1 to 10.6% in quarter 2 in 2008-09, widening the
net export deficit.
Domestic demand was increased by the expansion of government expenditure. Fiscal stimulus
measures initiated by the central government, in the form of tax cuts and additional
expenditures, added up to 2.9% of GDP One needs to take a look at the level of domestic
investment demand (Gross Fixed Capital Formation) to realize that it has been a key
contributor to the sustained growth of the Indian economy

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.

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.