Impact of the Recession on India

ABSTRACT

The word ‘Recession’ denotes a temporary period of economic decline during which trade and individual activities are reduced .Till date, the world has witnessed a number of economic recessions that bought the trade market to a standstill and left the economists and analyst with valuable lessons to be learnt for future .Globalization and liberalization have contributed a lot in making the entire world a close knit economic unit .In an interconnected global economy recession and economic turbulence in one part of the world has the potential to disrupt the economy of other countries in a major way. The present paper speaks about the various reasons behind recession and its impact on IT companies, employees, small scale industries, individual and market etc .

Recession not only affected united state of America, but also European Union and Asia .The Indian economy too has felt the impact of crisis to greater extent .Through it is difficult to quantify the impact of the crisis on India, it is felt that certain sector of economy would be affected , A recession is a decline in country’s GDP [Gross Domestic Product] for two or more consecutive quarter of a year . A recession normally takes place when consumers lose confidence in the growth of economy and spend less. This leads to a decreased demand for goods and service, which in turn leads to a decrease in production, lay-off and a sharp rise in unemployment. Investors spend less as they fears stock values will fall and thus stock market fall on negative sentiment. All it became difficult for individual to lead life.

KEYWORDS: Impact of recession, problems faced by employees, Indian industries, IT companies and obstacle in stock market.

INTRODUCTON;

Almost everybody today seems to be discussing about the US recessionary and its impact on developing countries, more particularly India .Economists, industrialist and the common man on the streets have experienced horrified situation by recession in India and that too due to US recession. Decreasing industrial production, cost cutting, reducing purchasing power etc are effects of recession.

The United States accounts for 1/4^th of the world GDP and slowdown it. On the other hand, interdependencies between the US economy and emerging economies like India and China has reduced considerably.

Governments usually respond to recession by adopting macro economics policies such as increasing money supply, increasing government spending and decreasing taxation. Recession has direct impact on profitability of company. It impact the expenditure power of company usually company try to shutdown some of its units and lay-off employees.

OBJECTIVES;

• To know the impact of recession on Indian industries.
• To know the impact of recession on Indian stock market.
• To know the impact of recession on Indian employees.
• To know the impact of recession on IT companies.
• Suggestions to overcome from recession.

METHODOLOGY;

The present paper is based on secondary data. The secondary data is collected from Central statistical organization, Government of India, Bombay stock exchange, SEBI Bulletin, and from other sources like magazine, journals, article, various research papers and authentic website.

LIMITATION;

• The study is limited to major sector of country.
• The period for collection of data is taken from 2005-2010.

What cause Recession?

According to the National Bureau of economic research [NBER], Recession is defined as “A significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real gross domestic product [GDP], real income .employment, industrial production and wholesale, retail sales”. more specifically, recession is defined as when business cease to expand, the GDP demises for two consecutive quarters, the rate of unemployment rises and housing prices decline.

Many factors contribute to an economy fall into a recession but the major cause is inflation. Inflation refers to a general rise in the prices of goods and services over a period of time. The higher the rate of inflation, the smaller the percentage of goods and service that can be purchased with the same amount of money. Inflation can happen for reasons as varied as increased production costs, higher energy cost and national debt.

In an inflationary environment, people tend to cut out leisure spending, reduce overall spending and begin to save more. But as individual and business curtail expenditure in an effort to trim cost, this cause GDP to decline. Unemployment rate rise because companies lay-off workers to cut costs. It is these combined factors that cause the economy to fall into a recession.

IMPACT OF RECESSION ON MAJOR SECTORS OF INDIAN ECONOMY.

IMPACT OF RECESSION ON INDIAN INDUSTRIAL SECTORS;

During recession industrial growth was also faltering, India’s industrial sectors has suffered from the depressed the demand condition in export market as well as from suppressed domestic demand due to the slow generation of employment. As per the index of industrial production (IIP) data released by CSO the overall growth in 2008-09 was 3.2% compare to the growth of 8.7% in 2007-08.

Source; Central statistical organization, Government of India

IMPACT OF RECESSION ON INDIAN STOCK MARKET;

The Indian stock exchange holds a place of prominence not only in Asia but also at Global stage. The Bombay Stock Exchange (BSE) is one of oldest exchange across the world. While the National Stock Exchange (NSE) is among best in term of sophistication and advancement of technology. The Indian stock market scene really picked up after the opening up of the economy in the early 90s. Due to this there was a collapse in stock price. As a result, the sensex fall from its closing peak of 20873 on Jan 2008 to nearly 8000 in oct-nov 2008.

Source; SEBI bulletin June 2010 number 06.

From the table shows that in the last trading day of 2008-09 BSE sensex was 9708.5. It was increased in 2009-10 was 17527.8, in 2010-11 it was 17558.7 and in May 2010 was 16944.6.

IMPACT OF RECESSION ON INDIAN EMPLOYEES;

The recent recession effected the Indian employees basically for BPO,KPO,IT COMPANY etc about Five hundred thousand employees rendered jobless in 2008, there is a say that “When the US sneezes the rest of the world catches a cold” because of US recession more employees lost their jobs.

Before the recession there were more than 1500 software firm in the country. In 2008 TCS had asked about 500 employees leave jobs due to non-performances .Patni computer systems (PCS) has laid off 14800 work force on same ground. By this employees faced fallowing problems.

• Balloons that burst:

Under this there will be no appraisal but decrease in salary as well as increase in working hours and may be terminate from job. The effect of this are:

• Sale of houses, because unable to pay home loan.
• Child withdraws from school due to school expenditure.
• Unhappy life.

• Added in defaulter list:

Because of recession employees have no regular salary or decrease in salary or lay-off from the job and hence he or she becomes a defaulter of bank loan, insurance premium, credit card, many more.

• Call to suicide:

He or she is unable to do many things like children’s school fees, bank loans, premium and other payment, he slowly goes in depression and frustrate in life. Consequently he thinks to suicide.

IMPACT OF RECESSIN ON IT COMPANIES:

The major IT Company in India is Infosys, Wipro, TCS, and Cognizant which is adversely affected by global recession in 2008.

Infosys:

The revenue from BFSI (Banking, Financial service and Insurance) that were at 37%in 2003.In 2007 Infosys got close to 37% of its revenue from BFSI .This slipped to 34% of revenue in the March 2008.

Wipro:

India’s 3^rd biggest software exporter have seen revenue from the key banking, financial service and insurance (BFSI) vertical rise by about a fifth between oct-dec 2007 to july-sept 2008.

Cognizant:

April-June 2008, Cognizant recorded the highest growth from financial service vertical among the offshore peers. This was mainly due to the type of financial service clients in the portfolio and the multiple operating levels.

TCS:

It earned 42% of its revenue in the second quarter of 2008.

Source: As a percentage of total revenue; BFSI contribution sourced from company reports, BFSI clients from equity analysts.

IMPACT OF RECESSION ON INDIA’S GROSS DOMESTIC PRODUCT (GDP):

Gross Domestic Product refers to the total market value of all final goods and service produced in a country in a given year, equal to total consumer, investment and government plus the value of export, minus the value of imports.

India, with $1.1 trillion or the second largest GDP among the world’s developing economies is trading on the right spending,

Path of sustained progress and development. While most western economies are heading toward recession, the Indian GDP growth is likely to witness a slowdown from 9.5% to 6.8% in 2008.

Source: Central statistical organization, Government of India.

SUGESSION TO OVERCOME FROM RECESSION:

Here some of the methods to overcome from recession:

• Encourage Export:

Country must keep foreign currency reserve in good health; encourage export to the extent that it doesn’t cause inflation in country. Export should turn the country from a consumer state to a producer state.

• Encourage savings:

Any family without saving is a roofless home; it can be subjected to rain or shine any time. Hence government should encourage savings from individual level or family level. Government should give tax sops for savings. Economies with their population having considerable amount of per capita savings and per capita disposal income are very much better protection in recession time.

• Cut taxes:

Government should give tax sops to encourage people to invest on real assets like stocks, bonds or to start new business so that new job opportunities are made and the money lying idle in savings is routed to healthy cause.

• Pay debt first:

Paying off debt that charges high interest or a bad debt should be given first priority .eliminate debt to reduce burden at time of low income. Paying mortgage loan, vehicle loan or any personal loan to the extent we can will help reduce Burden during recession period.

• Pay taxes promptly:

Government runs on the taxes that citizen pays. It is our duty to pay taxes to government. The more active a country’s citizen are in paying taxes, the more active the country and its economy would become. Hence to stop recession of country, pay direct taxes promptly.