impact of recession india

8/8/2019 impact of recession india

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Dipayan Datta

Avishek KarmakarNirupam Saha

Anupam Konwar


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A Recession is a contraction phase of the business

cycle

A country is to be in recession when it has recorded

negative growth for 2 successive quarters.

Consumers and investors lose confidence.

Demand decreases.

Adverse effect on sales and profit.

Rise in unemployment


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Sub-prime mortgage crisis.

Investment in stocks declined.

Stock exchange crashed.

Fall in consumer consumption.

Value of dollar declined.


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SUB PRIME CRISIS :

SUB PRIME CRISIS :


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LLet me not wait for the principal and theinterest on subprime loans to be repaid so that

the loan to the bank can be repaid

American 2 divides the home loans into a lot of small tranches and

gives it out as home loans to lots of other Americans like the first

American at a higher rate of interest than at what he borrowed from

the bank

American 2

So what does he do????..........................


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Yyippee!!!!!!!!!!

Yyippee!!!!!!!!!!

Money

Sell financial securities

American 2RSG Investment Bank of Wall Street

..He goes ahead and

securitises these loans.Securitisation

essentially involves converting thesehome loans

into financial securities, which promise

to

pay a certain rate of interest

Financial securities are then sold to big

institutional investors who are repaid

by subprime borrowers through EMI


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Yyippee!!!!!!!!!!Yyippee!!!!!!!!!!

Money

American 2 First Bank of Bankland

Loan repaid


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But here was the Hitch!!!!!!!!!!!!


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Subprime Home

loans given asfloating rate home

loans

Interestrate goes

up

Interest rate to be

paid on floating

rate home loans

also go up

EMI that need to bepaid to service these

loans also go up

Higher EMIs hit hardthe sub prime

borrowers leading to

repayment defaults

FIs not paid backleading to piling of

losses ultimately

leading to crisis


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The Housing Price Crash


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Impact of recession on IndiaImpact of recession on India

Indian companies have outsourcing deals with U.S. financial

companies.

Rise in unemployment in India.

2 lakh jobs lost in I.T sector.

Exports like garment export, gems and jewellery, spices and

leather goods are the worst affected.

Foreign capital flows decreased.

RBI decreased CRR and Repo rates to increase liquidity.


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How The Government Tackles RecessionHow The Government Tackles Recession

Tax cuts are the first step that a government fighting recessionary trendsor a full-fledged recession proposes to do.

The government also hikes its spending to create more jobsand boost the manufacturing and services sectors and to

prop up the economy.

T

he government also takes steps to help the private sectorcome out of the crisis.

Govt also introduce stimulus packages which are asfollows :


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Stimulus Package IStimulus Package I

Additional planned expenditure of `20,000cr.

Ensure full utilization of the funds provided.

Total planned and non-planned expenditure exceed `30,000cr

Government reduced CEVAT by 4%. CENVAT also reduced on petroleum product by 4,5 & 8 percent

for different categories.

Funds of Rs.1100 cr will be provided to ensure full refund of

Terminal Excise duty/CST. Additional allocation for export incentive schemes of Rs.350 cr

will be made.


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contd.contd.

RBI announced a refinance facility of Rs.7000 crore for SIDBI

which will be available to support incremental lending, either

directly to SMEs.

An amount of Rs.1400 crore was made to promote textile.

Consumer durables were made cheaper by reducing taxes on

inputs.

Export duty on iron ore fines was eliminated and on lumps was

reduced from 15% to 5%.

Government issued bonds worth Rs 4,000 cr as fertilizer subsidy to

compensate companies for selling at subsidised rates


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Bailout by Govt. of IndiaBailout by Govt. of India

The government also bailed out India's cash strapped public sector

airline Air India by pumping in ` 2,500 cr in liquidity into National

Aviation Company ofIndia(NACIL) which runs Air India.

Exporters who have purchased export credit protection were given

an additional dole-out from the government over and above the

cover they have already bought.

Government announced revival package to bail out textile industry

reeling under world economic meltdown. The Union government has

allocated some Rs1,400 crore to clear a backlog in its Technology

Upgradation Fund Scheme (Tufs), aimed at modernizing textile

machinery.


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Stimulus package IIStimulus package II


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Fiscal stimulus packages of `10,000 cr is expected to boost

demand for goods in the capital goods sector and theinfrastructure industries which primarily include power, cement,

coal, crude oil and petroleum.

Indias growth is based essentially on investing its own

savings, and so is relatively insulated from global finance andfashions. Indias savings rate has shot up from 23.5% in 2001-

02 to 37.4% today, a phenomenal achievement.

Industry sector has welcomed the measures though it had

expected more to defuse the situation. FICCI described the

measures as a good start in the right direction .

Fortunately, India with its 1.1 billion population has a huge

potential of keeping demand afloat. All they need is the

purchasing power which the Government is trying to do by

pumping in funds into the system.


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Present situationPresent situation

The overall mood of the industry looks promising with growth at 10.6 per cent for

the five month period, April-August 2010.

8 of the 17 industry segments were seen to surpass the growth rate during the firstfive months of FY 11 as compared to growth observed in previous year.

Confidence of the foreign investors in the Indian stock market has increased which

is evident from the swing between 19-20k in Sensex and the Nifty has moved between5-6 k.

Total merchandise trade from April August FY11 stood at USD 227 billion comparedto the total trade of USD 171.9 billion in the corresponding period of

trade the previous year.

One area of concern for the government is the flow of FDI into the country which isless than last fiscal.

The growth in IIP for the period April to August 2010-11 stood at 10.6 percent and

this was higher than the growth posted for the same period in the previous fiscal


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Improvement in Industrial productionImprovement in Industrial productionGrowth of Industry: Recent Trends (%)

Weights Aug(09) Aug(10)

INDUSTRY 100 10.6 5.6

Mining 10.2 11.0 7.0

Manufacturing 79.4 10.6 5.9

Electricity 10.5 10.6 1.0

Use based classification

Basic 35.6 7.7 3.7

Intermidate 26,.5 14.4 10.0

Capital 9.3 9.2 - 2.6

Consumer Goods 28.7 10.9 6.9

Consumer non durables 28.3 6.1 -1.2

consumer durables 5.4 24.7 26.5


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CONCLUSION :CONCLUSION :

According to Amartya Sen, the Nobel

laureate in Economics, the present

recession in the global economy is more amatter of psychology than economics.

We have to get rid of the mindset, themindset of recession.

impact of recession india

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