Recession and India

Presented By

Ajay Kumar Gupta

Roll No. 06, Sec. – (A)
ICBM - SBE
 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 thus stock markets fall on negative sentiment.
 US Crisis Hits India

US faced major crisis because of -

• Subprime mortgage crisis (homeloan defaults)
• Rising oil prices at $100 a barrel
• Global Inflation
• High unemployment rates
• A declining dollar value
All this slowed down the growth of the economy
and as the GDP growth rate fell to 2%, recession
set in.
 Crisis In The US
 The United States entered 2008 during a
housing market correction, a subprime mortgage crisis
and a declining dollar value
 In February, 63,000 jobs were lost, a 5-year record.
 In September, 159,000 jobs were lost, bringing the
monthly average to 84,000 per month from January to
September of 2008.
 On September 5, 2008, the
United States Department of Labour issued a report
that its unemployment rate rose to 6.1%, the highest in
How India will ride this Recession?
India will surely be affected by the crisis but
at the same time, it will be the first country to
emerge stronger with a solid foundation of
sustained growth.
There are few good reasons for riding this
recession - -
 1.-Foreign Direct Investment(FDI)
Years % of GDP • Being 10th largest economy in the
2000-01 0.60
World and 3rd in term of
PPP(Purchasing Power Parity), India
2001-02 0.85
has emerged as a potential player for
2002-03 0.61 FDI & NRI investment.
2003-04 0.44 • $16 billion total amount of FDI that
2004-05 0.54
came to India in 2006-2007 and $20
billion in 2007-08.
2005-06 0.69
• India provides highest returns on FDI
2006-07 0.84
than any other country in the World.
2007-08 1.32 • India has a strong English language
base for business purposes .
 2.- Exports
India Years Export as % of  World bank Chief Economist
GDP
said that more jobs will be lost
2000-01 9.68
in China than India because
2001-02 9.17 India is less dependent on
2002-03 10.39 exports and he said also
2003-04 10.65 emerging India is in much better
2004-05 11.92 shape in comparison to other
2005-06 12.75 emerging country.
2006-07 13.79  Half a million jobs have been
2007-08 13.92
lost in India and 20 million jobs
have been lost in China in last
 3.- Consumption
• Consumption accounts for just about 35% of GDP in China
while it constitutes about 65% of GDP in India.
• India's huge population results in a per capita income of
$3,300 at PPP and $714 at nominal.
• India has a vast domestic market of 300 million strong
middle class population having a substantial purchasing
power and another 700 million people whose capacity to
purchase is gradually increasing.
• Indian GDP growth rate will moderate from about 9% to
about 6% in 2008-09 while it is poised to crash from 13% to
6% in China. That’s why slow and steady is often better.
 4.- Sixth pay commission

• Government has recently handed over a pay

hike that ranges from 40% to 100%.
• Employees will get hundreds of thousands
of rupees as Arrears.
 5.- Welfare Schemes
• National Rural Employment Guarantee Program
(NREGP) that provides 100 days of employment
to the poor people in rural areas.

6.- Interest Rates

 The PLR rate is still more than 12% and its was
16% in mid 1990s.
 More than 7% of average GDP growth rates of the
last decade come after high interest rates in India.
 7.- Healthy Banks

• Europe and US banks have become habitual

for once mighty and then report losses.
• Analysts are deeply worried about Chinese
banking system.
• But no comments from western analysts and
their ilk about Indian Banks.
 8.- India Inc
 Western scholars acknowledge that India holds the advantage
compared to China because of 2 reasons –
2. Most successful India companies are private.
3. They have used capital for more productively and efficiently
than Chinese counterparts.
 Most Indian companies are sitting on billions of dollars of
reserves.
 AMI(Access Market Information) said SME channel partners
expect 12-13% growth in 2009.
 $6 millions for MSME programme to help Orissa unit by
UNIDO(United Industrial Development Organization)
 9.- Democracy
• India is the largest democratic county in the world.
That’s why the psychological impact on Indian
consumers and investors has been for more
sanguine than it has been in others countries.
• Business pundits say that democratic govt. is better
than an authoritarian or autocratic one when it
comes to delivering high growth rates and
economic prosperity.
• India 75th in Forbe’s best nations for business.
 References:
o Google search engine.
o McKinsey reports.
o World economic forum
o World social forum
o Harvard business review
o Accountancy magazine
Ajay Kumar Gupta
o The Economists Give comment-
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04/04/09 15