The Recession of 2008-The Recession of 2008-2009: How Painful Will 2009: How Painful Will

It Be?It Be?

What is Recession?What is Recession?

In economics, the term recession generally describes the In economics, the term recession generally describes the reduction of a country's Gross Domestic Product (GDP) for at reduction of a country's Gross Domestic Product (GDP) for at least two quarters. In the other words, recession is reduction in least two quarters. In the other words, recession is reduction in economic activities in the country.economic activities in the country.

RecessionRecession

Recession and its impacts on insurance sector in India.

Effects of RecessionsEffects of Recessions1. Credit crunches Banks may suddenly stop or slows down lending

activity that means many persons might not purchase any sort of properties which might leads to reduction in sale of many fire insurance policies.

2. Reduction in savings Recession directly effects the income of the person which in result decrease the amount of saving and that leads to reduction in sale of insurance policies.

3. Unemployment when a person is available to work and currently seeking work, but the person is without work. When the person does not have employment then he/she is not able to save which badly effects insurance sector.

4. Early entrants are not getting jobs.

5. Companies are closing.

6. Sales are not picking up.

7. Suddenly cash has evaporated from the market.

8. Profitability is seriously hit.

(In billions.)(In billions.)

$0

$5

$10

$15

$20

$25

$30

'96 '97 '98 '99 '00 '01 '02 '03 '04

Investments in india in different types of policies of Investments in india in different types of policies of LIC and other insurance companies.LIC and other insurance companies.

Source:- IRDA

Source: Commerce Department, Bureau of Economic Analysis

Savings Rate in india Savings Rate in india

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

J J A S O N D J F M A M J J A S O N D J F M A M*J* J

July 2008:1.2%

2007 2008 2009

$300

$320

$340

$360

$380

$400

A S O N D J F M A M J J A

Source: IRDA

Aug. 2008:$381.2 billion

2008 2009

REDUCTION IN SALES OF INSURANCE SECTORREDUCTION IN SALES OF INSURANCE SECTORTotal retail sales in billions of dollars, seasonally adjusted.

Source: IRDA

REDUCTION IN SALE OF ULIP POLICIESREDUCTION IN SALE OF ULIP POLICIES

100

102

104

106

A S O N D J F M A M J J A S O N D J F M A M J J A

Aug. 2008:100.8

2007 2008 2009

500

600

700

800

900

1,000

1,100

1,200

2006 2007 2008

Source: TIMES OF INDIA

Sales of new insurance policies.Sales of new insurance policies.

July 2008:515,000

2004 2005 2006 2007 2008

Percentage change in sale of new Percentage change in sale of new policies.policies.

-2%

0%

2%

4%

6%

8%

10%

12%

2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q

0

Source: Economic times

Deficit in Indian Insurance TradeDeficit in Indian Insurance Trade

$0

$10

$20

$30

$40

$50

$60

$70

J A S O N D J F M A M J J 2007 2008

July 2008:$62.2 billion

Source: Hindustan times

Consumer Confidence IndexConsumer Confidence Index

2007 2008

40

50

60

70

80

90

100

110

Aug Sept Oct Nov Dec Jan Feb Mar Apr May June July Aug

Aug. 2008:56.9

In percent, seasonally adjusted:In percent, seasonally adjusted:

4.5%

5.0%

5.5%

6.0%

6.5%

A S O N D J F M A M J J A

Source:Department of Labor

2008 2009

INDIA’S Jobless RateINDIA’S Jobless Rate

Source: Indian Workforce Commission

Increament in Unemployment Rate in india Increament in Unemployment Rate in india due to recession.due to recession.

3.5%

4.5%

5.5%

6.5%

7.5%

8.5%

June2005

June2006

June2007

June2008

How to come out of Recession?How to come out of Recession?

It is unhealthy for any nation to be in Recession;It is unhealthy for any nation to be in Recession; Government will take certain countermeasures to Government will take certain countermeasures to

eliminate or reduce the effect of recession for eliminate or reduce the effect of recession for turnaround;turnaround;

Important Point : Today, it is a market Economy,Important Point : Today, it is a market Economy, Producers can produce and can sell at their prices Producers can produce and can sell at their prices

and Consumers;can decide to buy or not…and Consumers;can decide to buy or not…

Here both Here both Producers and consumersProducers and consumers are free to are free to act without forced action.act without forced action.

Basic Don’tsBasic Don’ts Do not take too much vacation.Do not take too much vacation. Do not ask for promotion. Don’t emphasize(ask) for huge Do not ask for promotion. Don’t emphasize(ask) for huge

salary increase. If you ask, you may soon not have a job. salary increase. If you ask, you may soon not have a job. Remember, there are people available with better skills at Remember, there are people available with better skills at lower salary levels.lower salary levels.

Do not complain.Do not complain. Do not waste time gossiping.Do not waste time gossiping. Don’t resist a transfer.Don’t resist a transfer. Don’t resist travel.Don’t resist travel. Don’t resist a salary cut if done with valid reasons.Don’t resist a salary cut if done with valid reasons. Don’t resist extra time at office if needed.Don’t resist extra time at office if needed. Don’t change jobs in this market. It is too risky.Don’t change jobs in this market. It is too risky.

Basic Do’sBasic Do’s Be punctual to office.Be punctual to office. Ensure you pick up new skills.Ensure you pick up new skills. Do something innovative.Do something innovative. Take training programs.Take training programs. Always be engaged & productive.Always be engaged & productive. Ensure you deliver as per deadlines.Ensure you deliver as per deadlines. Organize team meeting to improve productivity.Organize team meeting to improve productivity. Ensure that you contribute to knowledge forums etc..Ensure that you contribute to knowledge forums etc.. Work doubly hard and save money for your company.Work doubly hard and save money for your company. Your boss is always right and is the best (During recession Your boss is always right and is the best (During recession

or no recession).or no recession).

Daily Daily ExpensesExpenses Take a list of your expenses.Take a list of your expenses. Tick “Need to have” vs. “Nice to have”Tick “Need to have” vs. “Nice to have” Knock off all “Nice to have expenses” – Right Now !Knock off all “Nice to have expenses” – Right Now ! Assuming you didn’t have a job – Plan for cash to survive Assuming you didn’t have a job – Plan for cash to survive

for 24 months. considering, this recession will take at least for 24 months. considering, this recession will take at least 24 months to come out !24 months to come out !

Government Plans against the Recession?Government Plans against the Recession?

Hence, Government does not have Hence, Government does not have direct controldirect control on Producers’ & on Producers’ & the Consumers’ behavior; But, they can influence millions of the Consumers’ behavior; But, they can influence millions of Producers &Consumers with Government’s policies;Producers &Consumers with Government’s policies;

Government has 2 plans

Fiscal Policies(By Govt.)

Monetary Policies(By RBI)

Government influences the economy by changing howit (Government) spends and collects money

RBI manipulates the available supply of money in the country

Govt control through RBIGovt control through RBIRepo RateRepo Rate: : Repo rate is the rate at which the banks can borrow money Repo rate is the rate at which the banks can borrow money

from a central bank of the country in order to avoid shortage of funds. from a central bank of the country in order to avoid shortage of funds. It is also a financial & economic tool in the hands of government to It is also a financial & economic tool in the hands of government to control the availability of money supply in the market by altering the control the availability of money supply in the market by altering the repo rate from time to time.Current repo rate is 5.0 %.repo rate from time to time.Current repo rate is 5.0 %.

Reverse Repo Rate :Reverse Repo Rate :Reverse Repo rate is the rate at which Reserve Bank Reverse Repo rate is the rate at which Reserve Bank of India (RBI) borrows money from banks. Banks are always happy to of India (RBI) borrows money from banks. Banks are always happy to lend money to RBI since their money are in safe hands with a good lend money to RBI since their money are in safe hands with a good interest. Current rate is 3.0 %.interest. Current rate is 3.0 %.

CRR :CRR :Cash Reserve Ratio is the amount of money that the banks Cash Reserve Ratio is the amount of money that the banks have to necessarily keep with the RBI.The RBI pays the interest have to necessarily keep with the RBI.The RBI pays the interest on the amount kept with it. on the amount kept with it. Current CRR rate is 5.0 %.Current CRR rate is 5.0 %.

Government Fiscal PoliciesGovernment Fiscal Policies

Government influences the economy by changing how Government spends and collects money

1] Tax cuts for businesses or for individuals

More moneyavailable forspending

Demand picksup; Market can recover;

2] More spending by Govt. to create jobs

Individuals getsalary and spendmoney

3] Automatic fiscal policy; Unemployment Insurance

Some income tounemployed people to spend

Fiscal Policies

Government Monetary PoliciesGovernment Monetary Policies

1] Reduce CRR for banks

More moneyavailable for bankto give loans

Demand picksup; Market can recover;

Government manipulates the available supply of money in the country

MonetaryPolicies

2] Lower the Repo & Reserve repo rates`

Individuals takemore loan

What about India in global market crisesWhat about India in global market crises

Most of the developingeconomies like China,

India;

Currently, Slow Down

Stage; Not yet in Recession

Most of the developedeconomies like US,

Japan, Germany, etcCurrently,

in Recession

GDP GrowthRate Down; But,

Still expected to beAround 6% in India

GDP GrowthRate Negative;

Don’t worryDon’t worryWhat goes down will always go up, Markets

will rebound – these tips will prepare you to be a winner !!

HOPING THIS TIME RECESSION VANISHES SOON SO THAT INDIA GETS BACK TO ITS STRONGER

GDP GROWTH RATE OF 8% TO 10% .(AS PER THE EXPERSTS OPINIONS IT WILL LAST TILL Q3 of 2009)..

You can be updated yourself with the current economic condition through ‘Business TV-channels,News,News papers’.