Recession

Recession in
in India
India
By KARTIKEYA TIWARI
 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”.
 For this reason, the official designation of recession may not
come until after we are in a recession for six months or longer.
 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
markets fall on negative sentiment.
 US Crisis Hits India

US faced major crisis because of -

• Sub prime mortgage crisis (home loan defaults)
• Rising oil prices at $100 a barrel
• Global Inflation
• High unemployment rates
• A declining dollar value
 Impact on India

A slowdown in the US economy is bad news for

India because:

Indian companies have major outsourcing deals

from the US

India's exports to the US have also grown

substantially over the years.

 Anatomy of the
economic depression in
India
 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
are stuck with cash flow issues on businesses that are yet
to reach break even, will run out of cash.
• Car, bike & truck sales down
• Steel plants are cutting production
• Hospitality and airlines are hit by poor demand 
 Opportunities in India due to
US recession
• US recession may be a boon for Indian offshore software
companies
• The impact of recession is higher to small and medium sized
(SMEs) enterprises whose bottom lines get squeezed due to lack
of spending by consumers
• SMEs in the US are under severe pressure to increase
profitability and business margins to survive. This will force them
to outsource and even have M&A arrangements with Indian firms.
• India is going to be a great beneficiary of this trend which will
minimize the impact of the US recession on Indian industry
• By March 2008, India had received SME outsourcing deals worth
$7 billion from the US as against $6.2 billion in the previous year
Industrial Sector
It was assumed that Indian Industrial Sector was the main sector to be the
worse affected because of lower demand for Indian goods and services
from developed and other developing countries and also from within the
country.
This was not only the effect but it was also a cause for recession as lower expectation
about the future demand for products.
Federation of Indian Chambers of Commerce and Industry (FICCI) found that faced
with the global recession, industries like garment, gems, textile, chemicals and
jewellery had cut production by 10 % to 50 %.
Indian Car Industry has seen only 7-8 % growth during the recession period
comparatively to 17.2 % growth rate before 2006-07.
The overall growth rate of Industrial sector was reduced from 7.4 % in 2007-08 to 4.2
% in 2008-09. This growth rate was 8.5 % in first quarter of 2007-08 which is highly
reduced to 0.8 % in the third quarter of 2008-09.
 Drivers of growth
• India • East and S.E. Asia
– Domestic – Exports
– Services – Manufacturing
– Consumption – Investment
– High tech, capital – Low tech, labour
intensive industry intensive industry
India has a vibrant private space
– 100 Indian Companies have market cap of US$
1bn
– 1,000 Indian Companies have received foreign
institutional investment
– 125 Fortune 500 companies have R&D bases in
India
– 390 Fortune 500 companies have outsourced
software development to India
– 2% bad loans in Indian banks (v~20% in China)
– 80% credit goes to private sector (v~10% in China)
Thank You