1

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. 2
 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”.

3
 What
Causes
Recession ?

4
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 5
6
 U.S.A – Consumption based
Economy.
 2/3rd economic activity i.e. GDP –
comes
from consumers.
 Credit - free flowing for U.S
consumers

7
for years the prices of homes in the U.S. kept rising.

Result
Overconsumpti
on/
Extravagant
spending
by the
Thus
consumer
For years
prices of
homes in US
8
9
 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.

10
11
 Dollar Stock
value market
Declined crashed

12
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.

13
During the weekend of
September 14-15,
Lehman Brothers declared
bankruptcy after failing to find
buyers.

14
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.

15
Another bank
failure
occurred on
September
25 when
JP Morgan Cha
agreed to
purchase the
banking
assets of
Washington M
16
17
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.
18
Share market!

19
20
 IT &
real
estate
sector
21
 Outsourcing industry worst hit

 Fortune 500 companies to slash budgets

by 5% in 2009

 building projects are half done allover the

country and in this tight liquidity
situation developers find it difficult to
raise finance.

22
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.

23
 Industrial
sector!

24
 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 25

 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 26
Banking sector!

27
 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 28
 Real Estate companies like DLF had to shut
down their projects due to inability to raise
funds as a result of liquidity crunch.

 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%. 29
POSITIVES…
 SBI posted a net profit of 40% in
last quarter of fiscal year 2008-09.

 No mergers seen among financial

houses.

 Growth in financial services was

9.5% in
the first quarter of F.Y 2009-10.

 Govt. slashed interest rates and 30

AGRICULTURE!
31

SHOWING..NO EFFECT…
 AGRICULTURE

 No major on impact on Indian agri.

commodity business
 Exports of Agri. Products reduced
due to decrease in global demand. In
US exports of agri. Products
decreased from $1285 million to
$785 million from Apr-08 to Feb-09.
 Agri. Sector not affected due to slow
down in FDI because of negligible
foreign investment.
32
AGRICULTURE

waiver of 70,000 crore ensured

steady growth of agri. Sector
 Price of food articles did not
increase due to normal and
distributed rainfall in 2008.
 Total foodgrain production
increased from 231 million tonnes in
2007-08 to a record 234 million
tonnes despite recession.
33
TELECOM SECTOR!
34

RESILIENCE…AGAINST RECESSION…
PROBLEMS FACED BY TELECOM
SECTOR…..
 Lack of foreign investment .

 Fall in consumption as people focus

on their needs.

 Lower penetration in the rural areas.

 Process of completing auction for 3G

spectrum and roll out services been
delayed.
35
TELECOM SECTOR HAS SILVER LINE…
 Despite recession INDIA added 8-10
mn subscribers every month.
 F.Y 2008-09 saw highest FDI ever.
For April-June 09 quarter FDI inflow
was $2bn every month.
 Airtel’s rural penetration increased
from 6% in 2007-08 to 12.5% in
2008-09.
 Registered revenue of $63 mn (Apr-
june 09) an increase of 53% from
$44 mn in II quarter of 2008.
36
37
 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.

 38
 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
39
 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 . 40
 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
41
 Organisations are cutting cost
to stand in the market.
 The real state was doing good
business.
 But nowadays the condition of
real state is still worse
because of recession.

42
43
44
Positive effects

45