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ASSIGNMENT OF

INTERNATIONAL BUSINESS
ON
HOW TO TACKEL RECESSION

Submitted to: Submitted by:


Prof. VIJESH JAIN GROUP-5
RECESSION
Introduction
The fear of a recession looms over the United States. And as the clich goes, whenever the US
sneezes, the world catches a cold. This is evident from the way the Indian markets crashed
taking a cue from a probable recession in the US and a global economic slowdown.
Weakening of the American economy is bad news, not just for India, but for the rest of the
world too.
So what is a recession?
A recession is a decline in a country's gross domestic product (GDP) growth for two or more
consecutive quarters of a year. A recession is also preceded by several quarters of slowing
down.
What causes it?
An economy which grows over a period of time tends to slow down the growth as a part of
the normal economic cycle. 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 lose 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.
"The risk of a recession in the US in 2008 is high and rising. If the US goes into recession,
you are going to feel it in Asia; you are going to feel it in India,"
Eastern Asia and China would be the biggest victims of a US recession. The subprime crisis
in the US would serve as a wake up call for central banks around the world.

LIST OF MAJOR RECESSIONS TILL NOW:-

Recession Recession Time


Cause & Impact
Name Year Taken
Stock markets crashed worldwide, and a
banking collapse took place in the United
Great States. This sparked a global downturn,
1929–1939 10 years
Depression including a second, more minor recession
in the United States, the Recession of
1937.
1937 Oil A quadrupling of oil prices by OPEC
.
Recession coupled with high government spending
1973–1975 2 years
due to the Vietnam War lead to
stagflation in the United States
Early The Iranian Revolution sharply increased
1980’s the price of oil around the world in 1979,
Recession
causing the 1979 energy crisis. This was
caused by the new regime in power in
Iran, which exported oil at inconsistent
intervals and at a lower volume, forcing
1980–1982 2 years prices to go up. Tight monetary policy in
the United States to control inflation lead
to another recession. The changes were
made largely because of inflation that
was carried over from the previous
decade due to the 1973 oil crisis and the
1979 energy crisis.
Early
1990’s Industrial production and manufacturing-
Recession 1990–1991 1 year
trade sales decreased in early 1991.

2001–2003 The collapse of the dot-com


bubble, the September 11th
attacks, and accounting
Early scandals contributed to a
2000’s 2 years relatively mild contraction in
Recession the North American
economy.

Early Let see what can be the impact of the


2008’s 2008-so on Continuing 2008 recession of US market on
Recession World.

Impact of an American Recession on India:-


Indian companies have major outsourcing deals from the US. India's exports to the US have also
grown substantially over the years. The India economy is likely to lose between 1 to 2 percentage
points in GDP growth in the next fiscal year. Indian companies with big tickets deals in the US
would see their profit margins shrinking.
The worries for exporters will grow as rupee strengthens further against the dollar. But experts
note that the long-term prospects for India are stable. A weak dollar could bring more foreign
money to Indian markets. Oil may get cheaper brining down inflation. A recession could bring
down oil prices to $70.
The whole of Asia would be hit by a recession as it depends on the US economy. Even though
domestic demand and diversification of trade in the Asian region will partly counter any drop in
the US demand, one simply can't escape a downturn in the world's largest economy. The US
economy accounts for 30 per cent of the world's GDP.
Says Sudip Bandyopadhyay, director and CEO, Reliance Money: "In the globalised world,
complete decoupling is impossible. But India may remain relatively less affected by adverse
global events." In fact, many small and medium companies have already started developing trade
ties with China and European countries to ward off big losses.
Manish Sonthalia, head, equity, Motilal Oswal Securities, says if the US economy contracts much
more than anticipated, the whole world's GDP growth-which is estimated at 3.7 per cent by the
IMF-will contract, and India would be no exception.
The only silver lining is that the recession will happen slowly, probably in six months or so. As of
now, IT and IT-enabled services, textiles, jewellery, handicrafts and leather segments will suffer
losses because of their trade link. Certain sections of commodities could face sharp impact due to
the volatile nature of these sectors. C.J. George, managing director, Geojit Financial Services,
says profits of lots of re-export firms may be affected. Countries like China import commodities
from India, do some value-addition and then export them to the US.
The IT sector will be the worst hit as 75 per cent of its revenues come from the US. Low demand
for services may force most Indian Fortune 500 companies to slash their IT budgets. Zinnov
Consulting, a research and offshore advisory, says that besides companies from ITeS and BPO,
automotive components will be affected.
During a full recession, US companies in health care, financial services and all consumer demand
driven firms are likely to cut down on their spending. Among other sectors, manufacturing and
financial institutions are moderately vulnerable. If the service sector takes a serious hit, India may
have to revise its GDP to about 8 to 8.5 per cent or even less.
Lokendra Tomar, senior vice-president, Integreon, a BPO firm, says the US recession is likely to
have a dual impact on the outsourcing industry. Appreciating rupee along with poor performance
of US companies (law firms, investment banks and media houses) will affect the bottom line of
the oursourcing industry. Small BPOs, which are operating at a net margin of 7-8 per cent, will
find it difficult to survive.
According to Dharmakirti Joshi, director and principal economist of CRISIL, along and severe
recession will seriously affect the portfolio and fixed investment flows. Corporates will also
suffer from volatility in foreign exchange rates. The export sector will have to devise new
strategies to enhance productivity.
Steps for tackling the world recession for Indian export :-

Steps by Govt.
 Make currency for export oriented:-
Depreciate the value of the Indian rupees against the
world’s major currencies to make Indian export cheaper for
them.
 Increase in tax sops for exporters
 Increase in export incentive programs like draw back duty.
 Easy Availability of Fund:-
Govt. should ensure the eas y availability of fund for
exporters at lowest cost, which is in India the cost of
acquiring fund, is ver y high.
 Provide Infrastructure Facility:-
Govt. should provide good infrastructure facility to the
exporter like logistic & transport facility or if possible,
Govt. could provide these facilities free of cost to boost
export.
 Create Environm ent for R & D and Innovation:-
Govt. should create environment in such a manner that can
boost to R&D and Innovation work in India, so can it can
boost the demand for Indian product especially
technological product which is right now in ver y low level.
 Encourage and give subsidies to exporters to participate in world
trade fairs like textile fair in Germ any.
 Market of Indian product:-
Govt. should boost the marketing campaign overseas for
Indian product and services. Indian marketing campaign
should focus on quality product and services. Marketing
should in such a way that overseas importer always see
Indian product is always quality wise good.

Steps by exporters
 Exporter should come with a Joint Business:-
Indian exporters who mostly are small and medium level
exporters (especially in textile, handicraft & leather industry)
could come together to joint hand to create value chain. It
helps them:
 It will make possible for them to invest on
marketing which impossible individually.
 It will make viable to them invest in expansion of
their operation capacity through which they can
produce goods in bulk and able to reduce per unit
cost
 Focus on Emerging Econom ies:-
Make focus on world’s emerging countries like BRIC
countries, European nation and West African countries
because they have purchasing power. In West Africa, goods
at departmental stores are sold at the rate 5 times than
Indian price and Indian goods are not exported to several
countries in West Africa. It is an excellent opportunity for
our exporters.
 Focus to Reducing Operating Cost: -
Exporter should focus on develop their service s and
products in such a way that their service help to reduce the
operation cost. So importers can use our service to bring
down their product cheaper and people always concerned
with cheaper good in recession time.
 Exporter can focus on domestically demand and emerging
econom ies that can use services in major way.

 Focus on Elite Class:-


Slow downing in the economy does not much effect on
some segment of society especially elite class and they
always concern of good quality of product. Indian
exporters should try to increase the quality of their product
and target that segment.
 Marketing of core Competency:-

As Indian medical facilities are very good and cheapest in


the world, so in this area marketing should be more
aggressive so people from developed country can come
here and can avail cheap but a good medical facility
alongwith the marketing of herbal medicines, ayurvedic
treatment, coupled with yoga and meditation.

 Investment on R & D and Innovation:-


Exporters should focus on innovation it is the only tool,
which can bring demand for good. Indian exporters should
focus on innovation instead of imitation, for which Indians
are famous.
 Try to build up their own Value Chain:-
Indian exporter should try to build up their own value
chain like their own distribution channel, own marketing
of their product, for building their own brand (like
Japanese Company) so that Indian exporter can provide
product value for money which through overseas agent
could not possible because they charge more.

RECESSION IS A BOON OR CURSE FOR


INDIA

Recession Could Be Beneficial for India. In the recession, it will lead


low er dem and of basic commodities like crude Oil, dem and for the Steel,
Cem ent, Food Grain, which is the basic reason for the increase in the
input cost of the world products. Of these commodities price has been
doubled or tripled in the recent past which is the one of the im portant
reason for the inflations.
Due to lower dem and of these commodity’s price would goes down.
It will help in slowing down of the Inflation of India by which it will lead
to increase in demand of our product by our people. Because the GDP of
India increase due to high population not because of International Export
by which it can help in increase in Indian Economy through out the
world.
So as a conclusion we can say that Indian Economy mostly depend
upon the population of India and their purchasing pow er (which is the 4 t h
largest Economy in the world if we calculate according to purchasing
power parity), that mean the recession taken place anywhere through out
the world (whether in US or in any country), it can’t affect the Indian
Economy.