TURBULENT TIMES

RECESSION
We had been hit by many disasters but few had such mass
impact like this recession did, which drowned the world in
the massive tsunami waves of global meltdown. This
phenomenon had both direct and indirect impact on
common man’s life in more than one dimension. Recession
technically is regular fall in two consecutive GDP i.e.
minimum period for it is 6 months. But this does not reflect
its magnitude, as this one was the greatest after
‘THE BIG DEPRESION’. Though the good news is that
we survive a total financial meltdown after collapse of
LEHMAN BROTHERS which griped the system as sudden
cardiac arrest yet we have this massive task to come in
terms with this global economic breakdown. The total
credit loss in U.S. is 3.6 trillion out of which 1.8 trillion is
borne by American banks and government. The effect on
developing economies had been significant the countries
like INDIA and CHINA have their growth rates going
down but still they do showed a progress due to developing
economies and their own domestic consumption.
There have been many reasons behind this as an
economic cycle operates recession is an important phase of
it. But this one was different as the intensity of it was huge
enough to be the worst one in last 60 years and unlike
others it is not a regular V shaped curve but it rather shows
up to be a wide U shaped curve which will result in slow
and gradual recovery instead of a sudden jerk. As per the
prediction we are expected to be on recovery path by mid
2010.In India the situation could have been better if the
government had seen the alarms led by world economy
instead of fighting against an unintentional fight against the
inflation, they should have looked to clear the bottlenecks
of the economy rather than bringing down the budget. The
fall in American housing loan and real estate gave a bubble
effect to it. The problem in first place arose due to
continuous reduction in interest rates and to make the
matter worse there was an easy access to loan and without
proper documentation which lead to a burden over the
economy which couldn’t be borne by the same and it
collided under its own pressure.
The effect of this slowdown have been far from being in
within the bounds as there are all sort of problems
emerging on the surface of global economies. The global
capital market is not in the best of shape, peoples are losing
there employment there had been paycuts, almost a
negligible number of new jobs being created. Due to this
downturn the companies at first place had to cut their
investment to consolidate their own position so the invested
sector suffered and apart from it few who could put in fresh
investment are afraid to do so. The governments approach
here though must be more active rather just supplying the
funds to the companies rather they must take companies up,
clear them and sell them back against their policy of
keeping them alive the way they are at present.
Due to recession the supply of capital dropped
significantly and it resulted in sharp fall of demand which
caused the producer to bring down the prices and
production at a jerk. The fall in price of oil from about
140$ to 40$ is an example which shook the greatest of
economies. Further looking into the sectors hit hard are
information technology, hospitality, travel, entertainment,
real estate and others to name a few. The effects on IT and
real estate have been somewhat severe. The lower income
group people have to face a real tough time as they are
facing several hazards at one time. First they are in a
dilemma of losing there job due to cutdown in employment
sector and secondly there average budget has rose by about
5.3%.
There is one more aspect of this meltdown which leads to
affect the countries that were hardly connected with this
turn around. These aspects were GLOBALISATION and
MULTINATIONALS, they can be very decisive tools as
they bring a lot of development to untouched areas and
leave a mark during prosperity but at the time of despair
they can ruin the economic condition as in the case of
current recession they hurt countries that might have not
face the consequences at this magnitude. These instruments
carried the effects of affected developed economies to the
relatively unaffected economies. The countries that had
rather balanced approach towards domestic and
multinational industries had survived better and displayed
the need of a well balanced economy as too much
dependent on outside factors can be fatal at such times.
Indian industry recorded negative growth for the first
time in 15 years, falling to 0.4 per cent in October as
against 12.2 per cent expansion a year ago as the impact of
the global economic downturn deepened in the country. The
fall is partly due to a dip of over 12 per cent in India's
exports. Policy makers said the fall was bigger than
expected even as they exuded confidence that the
December 7 stimulus package would arrest any further
decline. Industrial output had last fallen in April
1993.Manufacturing, comprising around 80 per cent of the
Index of Industrial Production, clocked a negative 1.2 per
cent growth in the month from a whopping 13.8 per cent a
year ago. In fact, output in two of the four sectors that make
up the index -- intermediate goods and consumer goods
contracted to 3.7 per cent and 2.3 per cent, respectively,
from a growth of 13.9 per cent and 13.7 per cent,
respectively. Within consumer durable goods, both
segments -- consumer durables and consumer nondurable --
shrank by three per cent and two per cent, respectively. Of
the total 17 industries, captured in the IIP figure, as many
as 10 recorded a negative growth and could have a similar
bearing on economic growth, given the fact that industry
accounts for 29.4 per cent of GDP. India's foreign exchange
reserves fell to $245.857 billion as on Dec. 5, from
$247.686 billion a week earlier. Foreign currency assets,
expressed in dollar terms, included the effect of
appreciation or depreciation of other currencies held in its
reserves such as the euro, pound sterling and yen. Reserves
have declined sharply in recent weeks mostly due to the
central bank's dollar selling intervention in the currency
markets to shore up a falling rupee. More than half of
India’s services and merchandise exports go to the US.
Countries like India, China and Japan, which have been
registering steady growth in exports, especially to the US,
are likely to be affected by the slowdown in the US
economy. Experts predict that eventually US businesses
would either reduce outsourcing or withhold expansion
plans. Consequently, BPOs, financial services and other
software exports contributing to about 2% of India’s GDP
are likely to be affected along with another 7% constituting
service exports, which are vulnerable to the US economy
swings. Despite significant Asian growth and India’s
strategy to focus on non-US markets for exports, a
slowdown in the US is expected to influence almost all
economies worldwide. However there has been a
significant and positive change in the way India has been
managing its external sector with respect to changes in the
global scenario. Appropriate exchange rate methods and
good external debt management are some of the positive
traits of the Indian economy. New policies and mature
governance has helped India face numerous global crises
and yet maintain an enviable growth rate.
This turnabout though has some sliver linings which may
be pointed as it gave the companies opportunities to review
their strategies and tie up their loose ends. Now the
companies are improving their5 product to capture the low
market as much as possible and moreover from an
investor’s point of view if he had adequate capital then he
can invest keeping the long term view in mind. It reflected
the importance of balance in savings and spending which
many learns the hardway by declaring insolvency.
Thereby one may say that this recession though was
contributed by many factors but it also exposed the
weakness of the economy and companies all around the
world and gave a chance to improve our strength with a
strong base. One just hopes that this period will be over by
mid 2010 as predicted though we are already on a road of
recovery.
ANKIT PODDAR

ROLL-554

ROOM-43