m

  

  



²
 
 


Term Paper
2009-2010
MGT-515
Submitted by:
Guided by:
Chandan kumar singh Miss Palwinder kaur

Section-RT-1902

Roll number ±A-27

Regd No-10903162
 "


 î 
 

 ^
 
î 

  
  !

 
  " 
##

 M $$ " 
#!

 £  " 
  %#

 M  $ 

 º  
&%




 3

î 
 
ô provide full justice to this term paper which is prepared by visiting various web-
sites, magazines, articles etc.

An interesting part of this term paper is research methodology which is prepared

with the help of the ôndian culture. ôt includes the future of the ôndian economy
which is how survive the present world.

ô would like to take an opportunity to thank all the people in collecting the
necessary information and making of the report. ô am grateful to all of them for
their time and wisdom.

My project becomes a reality only due to cooperation of many people who had
helped me in completing this project. ô sincerely extend my gratitude to $
'î ()î( who has given me this precious opportunity to have an
know about our ôndian economic condition of strength or weakness of the ôndia.

^
 
Objective of this term paper is know about the present ôndian global recession. The
present recession impact effected aprox all over the world. The hole economy of
the world facing the meltdown in present. The ôndian economy is also facing the
melt down situation.






 Œ


 

èe are shining, we will be the 2nd largest economy by 2020, we are the largest
pool of skilled man power on the earth, we are the emerging global ôT superpower,
we are the outsourcing hub of the world, we offer one of the largest consumer
market across the world for MNC¶s, we boast of rich and varied heritage, we are
growing at the GDP rate of impressive 8-9% per annum and aiming for a glittering
double digit growth rate soon, we are ôndia!

ôt seems that the above facts are in our favor; we are shining, but are we really? Or
our mindset of estimating standard of living of the population just by the glittering
GDP growth rates is a sign of our biased mentality? The other side of the story -
25% population still living below poverty line, most of the cities and villages
without even suitable condition for a healthy living, proper health care centers,
electricity, UNESCO is concerned about the child mortality rate in ôndia, we are in
the top countries from below in the Human Development ôndex and still we
ignoring the reality or over shadowing the face of our country¶s ugly face.
èe are definitely showing improvement in our condition from the standpoint of
economic growth, we are doing fairly well in terms of various developmental
indices; economy is at boom despite the global melt down affecting various
markets. Our strength is our own untapped rural and urban markets, people with
increased disposable income, higher literacy rates. Take example of Mumbai the
ôndian dream city, we have one of the costliest office spaces of the world and in the
same city we have largest slum of Asian continent; Dharavi and many others like
Gowandi. èe have industry barons; at the same time we have the people who die
of hunger, mal-nourished children who we claim to be the future of our country.
How we can claim of an all round development of the economy when those
 Ú

children do not have proper nourishment and health care in place, let alone the
educational facilities?

èe are too much obsessed with our momentary success and we have forgotten the
real ôndia, which lies in rural areas, which lies in the ignored areas of our great
cities and we are actually trying to isolate them from our comfortable standpoint on
the development. Our administration system though working hard to eliminate
illiteracy, providing proper nourishment and health care facilities to every ôndian,
trying to provide the employment to everyone who needs it. èe never forget to
blame our government for all the failures; we try to put the responsibility on others
shoulders, we keep on complaining about poor facilities, we only forget to act!

èe complain about the crook politicians, but again we select the same lot of them
in every upcoming election. èe do not go to fight on the political front ourselves,
those who think they are intellectuals and politics is a dirty game, need to rethink,
need to make a choice of always complaining or making things better- then only
the change will come. ôf we can think towards a rational plan of development we
should always try our hands in implementing it for the benefit of our country.


 J

²&"  &  $  $ &" " 

$"   &

  %

These inflows have been fuelling capacity expansion in ôndian industry since 2001.
Think of the telecom industry and the capacity expansion by Airtel, Tata ôndicom
and Reliance Mobile over the last five years; think of the Rô mega-refinery
projects; think of all the swank new malls and multiplexes that were built in your
metro over the last five years; think of all the SEZs that were proposed in 2007;
and you will see what ô mean here.


 

²&£ "   $$"  $

The fact that the debt inflow was as high as 39% of the total tells us where the hit
is going to come from. èith a global credit freeze in progress, it is clear this inflow
is going to dry up. èe already are seeing the portfolio equity inflow turning into an
outflow in the last few weeks, pulling the Sensex below the psychological 10K
mark.

èith these funds drying up, capacity build up will reduce. Combine this with a
liquidity squeeze imposed by ôndian banks on retail borrowers (to counter
inflation) and you can see the demand also reducing. Reduced supply + reduced
demand > Reduced GDP growth.


 P

²& 
  %
î  %
 ôn the past 15 years, ôndia¶s GDP has increased from US$250 billion to over
$1 trillion. Per capita income is over US$ 800.

 ôn PPP terms ôndia¶s G terms, ôndia s GDP is worth US $ 3787.3 billion, the
fourth largest economy in the world.

 A range of sectors Market capitalization. ôndian companies are present in a

large number of sectors ranging from engineering to financial services.

 The market capitalisation of top 500 companies is in excess of $800 billion

or about 70% of GDP.
 g

ñ$  $$ $ "

Î Trade, hotels, transport & communication

Î Financing, insurance, real estate & business services
Î Community, social & personal services
 m

Ã'Ã  &$$ 


Î GDP growth slowed down from 9.0% in 2007-08 to 6.7% in 2008-09

Î Growth slowed down to 5.8% in 2H 2008-09
Î Economy likely to have bottomed out and growth is likely to recover to
Around 7% b th d f 2009 -10.

 
$$   "$  & & $


î 
 &

Economies 2007 2006 Current Current

Projection projection
èorld 5.2 3.2 -1.3 1.9
Advanced Economices 2.7 0.9 -3.8 0.0
United States 2.0 1.1 -2.8 0.0
Euro Area 2.7 0.9 -4.2 -0.4
Japan 2.4 0.6 -6.2 0.5
UK 3.0 0.7 -4.1 0.4
Emerging and developing country 8.3 6.1 1.6 4.0
Developing Asia 10.5 7.7 4.8 6.1
China 13.6 9.0 6.5 7.5
ôndia 9.3 7.3 4.5 5.6
Brazil 5.7 5.1 -1.3 2.2
Mexico 3.3 1.3 -3.7 1.0
 mm

 
  "£$$

Î ôn 2008-09, there were large withdrawals of capital especially portfolio
flows.
Î FDô remained strong despit the financial meltdown while foreign loans
moderated a bit.
Î As a result of capital outflows in 2008-09, the rupee has depreciated
by over 25% in that year till.
Î The recent recovery in capital inflows has lead to some reversal
with the rupee now trading at levels of Rs 47-47.5/US$.

"   

 * %

Î A sharp increase in inflation preceded the current moderation

Î Swings in commodity prices is driving inflation trends
Î Primary product prices ± food and non-food ± have started hardening
Î Could see a period of falling prices in the current year

Î èill lead to further easing of monetary policy and decline in lending rates
m"
 m3


  "£$$

Î ôn 2008-09, there were large withdrawals of capital especially portfolio

flows.

Î FDô remained strong despit the financial meltdown while foreign loans
moderated a bit.

Î As a result of capital outflows in 2008-09, the rupee has depreciated

by over 25% in that year till.

Î The recent recovery in capital inflows has lead to some reversal

with the rupee now trading at levels of Rs 47-47.5/US$.

M $$ " &'$  

($$ 

The standard story of the present global recession and financial crisis emphasizes
the centrality of developments in the United States²especially the expansion and
subsequent collapse of the real estate and real estate financing bubble and its
impact on an overleveraged US and global financial system. Others point more
broadly to persistently easy monetary policies, very low interest rates and interest
rate spreads, and general disregard of growing
risks in the financial system as key causes. Some, especially among present and
former US officials, point to the ³global savings glut,´ particularly the part
emanating from China¶s massive current account surpluses and reserve
accumulation, as a key underlying cause of present travails. All of these
explanations harbor a degree of truth, especially the first two. However,
to understand both the sudden sharp deepening of the global recession and
financial crisis last autumn and the reasons to anticipate recovery, it is important to
look to a broader set of causes of present difficulties.
èhile it seems like a distant memory, it is important to recall that from mid-2003
through early 2008, the world economy enjoyed a boom of broad scope and
exceptional vigor, with average annual growth of global GDP approaching 5
percent and with virtually all countries participating in the boom. As reflected in a
deteriorating balance of real net exports, through the end of 2005, growth of
domestic demand in the US economy in excess of US real GDP growth contributed
to the boom in output in the rest of the world. The upsurge in residential
investment in the United States and the impact of increasing
household net worth from rising home and equity prices on US consumption
contributed to this phenomenon. ôn 2006 residential investment turned downward,
 mŒ

and growth of US domestic demand slowed. èith the aid of a weakened dollar, US
real net exports began to improve. ôndeed, from the end of 2005 through mid-2008,
the improvement in US real net exports slightly more than offset a very large
decline in real residential investment. This kept US real GDP growing, albeit at a
reduced pace, despite a considerable slowdown in real
domestic demand growth. Thus, the rest of the world helped to cushion the
slowdown in the United States.
M $$ "  ($$ 
Generally speaking, a recession is when there is a tightening of the economy,
usually for a certain period of time.

Given below are 10 signs that usually indicate that a recession is knocking.

 ²&( ^"+ $$$$î$$ $$  '
  $

Usually, the rate of jobless people remains steady every month. But if there is a
constant, steep rise in that number, then this could be a sign of recession.

 M 
$ñ  Ã
$$' " £ $

èhen many companies across all sectors start giving out depressing sales and
profit figures, then alarm bells should start ringing.

 º  $ñ  "  
èhen borrowers are unable to pay back their loans on homes, vehicles,
businesses and credit cards, then this could be another indication of a falling
economy.

 '$^"$$ M 
 $ñ& $

èhen prices of food, fuel and other utilities shoot up - and the government
seems helpless to do anything - then it could be said that inflation is fanning the
flames of a possible recession.

 M 
$ñ
£,$

èhen companies decide to keep their job openings vacant instead of hiring new
staff, then this again is another sign that a recession has afflicted the economy.
 mÚ

Many companies might also offer voluntary retirement programs in order to

reduce their workforces and cut expenses.

 '$^"'
 %î

ñ $M  $ %-º 

%º %$²&
èhen repossessed homes and stock prices come down in value, but nobody has
the funds to buy them, then it can be truly said that the economy has been hit by
a recession.

 ²&M  %.$Ã'Ã $ 

èhen a country's GDP, or Gross Domestic Production, registers a continuous
downward fall, then this could be another sign that the economy is in recession.

 ñ$î$
£ %² %/
$$
èhen people start terminating their fixed-term deposits, such as CDs and
ôRA¶s, and sell off other assets to meet their day-to-day expenses, then this
could indicate that a recession has started doing some serious financial damage.

 ñ   %î î^"²&î 

èhen you start feeling the pinch and start worrying about your own future on
the above points, then this will indicate that the recession has now reached your
door.

 
   $$ $

The contagion is truly global in a globalised world. How can the high priests of
globalization in ôndia expect to insulate the country from this all-pervasive crisis?!
Already the financial crunch is having its impact on the foreign institutional
investors¶ (Fôô) hot money in ôndia . Just wait for the impact on trade, foreign
direct investments (FDô), exchange rates, remittances, balance of payments (BOP),
foreign reserves and, above all, on the macro-economy in ôndia. Goodbye to the
rosy stories of double-digit µgrowth miracle¶, it is now an impending debacle that
 mJ

stares economic analysts in the face.



î  $/
$

TATA Motors has announced a new work schedule of reduced days every week in
its truck manufacturing facility in Pune and Jamshedpur as loans are getting on the
truck buyers nerves. Ashok eyland is worse affected and has announced a pile -up
of a huge unsold inventory of 13,000 commercial vehicles. ôt has planned to
shutdown its commercial vehicle manufacturing operations for longer periods till
Dec '09.
ôn the car segment Mahindra Renault has reduced its production from 2500 cars a
day to 1000 cars at its Nashik (Mah) plant due to lack of demand. The offtake
reached a peak of 3068 units in March 2008, with 1531 in May,1464 in August and
now 1067 units in October.
ôn the two-wheeler segment Bajaj Auto announced the shutting down production of
bikes at Aurangabad(Mah) for two days in November '08. A decline of 34% of
sales was reported in October vis-a-vis Oct 2007.The total unsold inventories of
Bajaj Auto amount to 50,000 two wheelers.
²& 
  
   
ñ  $

The festival season in ôndia was seldom so gloomy for the share market. ônvestor
wealth worth Rs. 250, 000 crore (1 crore = 10 million) was wiped out on the
bourses on a single day, on 10 October. The Sensex fell by 1000 points before
recovering some 200 points, an intra-day drop of some 800 points. The lachrymal
wave washed away the festive mood.
At the first sign of stock market crash and Fôô funds stampede, the United
Progressive Alliance (UPA) Government has once again permitted P-notes
 m

(participatory notes) paving the way for enhanced speculation. The present
convulsion in the ôndian bourses would look mild before any possible explosion in
future as a result of this heightened speculation. Despite the government itself
acknowledging that the P-notes were being abused/misused at the time of banning
them, no safeguard has been put in place. Anyway, how can there be any safeguard
within the realm of speculations? ôt is absurd.

 
   
 $

³ôndian banks are safe,´ reassured Reserve Bank of ôndia (RBô) Governor
Subbarao repeatedly. ôndian banks' exposure to international markets is relatively
small at 6 percent of their total assets, the rating agency Crisis said, adding that
even lenders with large international operations have less than 11 percent of their
assets overseas. But a mini-version ôndian bailout was in the making
simultaneously in the first week of October with the government virtually shoring
up two mutual funds and ife ônsurance Corporation ( ôC) coming to the urgent
rescue of three more which landed into liquidity crisis in the backdrop of a steep
crash in the stock markets.

At a time when the big names in èestern banking industry are queuing up
for bailouts, there may be a sudden leap in non-resident ôndian (NRô) deposits in
ôndian banks as these funds would look for a safe haven back home. èe can hence
expect a big clamour from the NRô lobby for greater concessions for their deposits.
Chidambaram would only be too willing to oblige. The RBô recently increased the
credit cost on term borrowings (with more than 7-year maturity) to ibor+4.5%
and even then the big ôndian corporate names are finding it difficult to raise funds
amidst the present turmoil. ôndian borrowers will end up paying more for the
foreign lenders and ôndian banks might be forced to pay more for the NRôs ± all in
 mP

the backdrop of a creeping recession and falling rate of profits.

/&( (

  

èhen the western economies are going into a tailspin one after the other, the
appreciation of dollar and euro looks somewhat paradoxical. From unprecedented
appreciation earlier a few months back, the rupee fell to record low ² reaching
Rs.49 per dollar at some point. The dollar is gaining vis-à-vis rupee because of the
outflow of the Fôô funds and since the worst is yet to come in the US /global
meltdown, a repeat of the East Asian crisis in ôndia is very much a possibility.
During the preceding period, if the rupee appreciated by around 18%, now it has
depreciated by around 19% during this Jan-Sept.
The exporters who were crying earlier are happy but it is now the turn of
importers to come to grief. Not many people know or remember that
manufacturing imports had overtaken total domestic manufacturing production in
the domestic organised industrial sector this year. Apart from cost escalation and
consequent reduction in profit margins, just wait for the impact of the rupee
depreciation on inflation. The confident prediction of possible fall in inflation rate
to single digit by January sounds hollow in the backdrop of this as well as the cut
in CRR rates and other measures by the RBô aimed at increasing the liquidity.



 
  ²



The trade deficit is reaching alarming proportions. ôf exports are growing, imports
are growing even more. Thanks to workers¶ remittances, NRô deposits, Fôô
investments and so on, the current account deficit at around $10 billion doesn¶t
look so threatening. But for some reasons if the remittances dry up and Fôôs funds
 mg

take flight, it will be a repetition of 1991 after a few years if forex reserves get
depleted and trade deficits keep increasing at the present rate. Even as the
country¶s exports and imports registered a substantial growth of 35.1 per cent and
37.7 per cent in dollar terms, respectively, during the first five months of the
current fiscal (April to August), the trade deficit during the period has shot up. The
trade deficit was around $14 billion for a single month of August 2008, a record
level. Even Goldman Sachs¶ prediction that ôndia ¶s forex reserves would decline
to $271 billion by year end from $310 billion in March 2008 looks a very
conservative estimate.

ñ  


"Suicides after market crash is an urban trend" « screamed the headlines in a pink
paper. Beneath that was the sob story of an entire family committing suicide after
heavy loss in the stock market. "èhether it is a seemingly well-to-do US-resident
of ôndian origin wiping out his entire family or middle-aged brother-sister duo
killing their parents and then committing suicide, the financial crisis has hit
everyone, and has hit them hard", the report added. At least, the desperate farmers
go alone leaving their family members in the lurch. But the scorched middle class
investors take their entire families along and that is the level of urban investing
middle class insecurity. This explains the golden age for gold as investment in
yellow metal is considered safer. Just think of the hundreds of new scrips by
companies with ambitious investment plans counting on these investible surpluses
of the middle classes and also the market opportunities opened up by their wealth.
All these plans for new scrips will be scrapped. The middle class boom might be
glamorous but the depression in incomes and losses in the markets are far more
agonizing. Pink slips are painful indeed and joblosses are not limited to the èest
alone. Those who are hoping that jobs in the èest would shift across to the
 "

cheaper shores of the ôndia are missing the point that domestic job losses due to
recession in the èest as well as a slowdown in ôndia would far outweigh such
outsourcing gains. Even the real estate boom is going bust in Bangalore , the
ôndian El Dorado.


' £²²îñ(ñº Ã^,(²

To lift the economy out of the meltdown the Government announced a package of
Rs 35,000 crores in the first instance on December 7, 2008. The main areas to
benefit were the following:

012 $²A refinance facility of Rs 4000 crores was provided to the National
Housing Bank. Following this, public sector banks announced to provide small
home loans seekers loans at reduced rates to step up demand in retail housing
sector.

01 $
 ($3&$/  $  "/

 3
 

01 $" ($3&$/  $   3
 

01 
 $$&$  

   $

01 
 %  &

$ "

% 

01£"$  "  &  $ 

  

This means a borrower can get a loan up to 90 per cent of the value of the house.
The government hopes to disburse Rs 15,000 to 20,000 crores under the new
package.
 "m

The housing package is the core of the government¶s new fiscal policy. ôt will give
a fillip to other sectors such as steel, cement, brick kilns etc. Besides, the small and
medium industries (SMEs) too get a boost by manufacturing all kinds of fittings
and furnishings.

The success of the housing package will, however, depend on the State
governments efforts to free up surplus land so that land prices come down and the
cost of housing becomes reasonable.

0 1²/ $²Due to declining orders from the world¶s largest market the United
States, the textile sector has been seriously affected. An allocation of Rs 1400
crores has been made to clear the entire backlog in the Technology Upgradation
Fund (TUF) scheme.

The Apparel Export Promotion Council (AEPC) Chairman, however, said: ³ôt is a
disappointing package. The allocation of Rs. 1,400 crores has been pending for
many years and thus, it is the payment of arrears only. There is nothing new in it. ôt
would have been much better if more concrete measures have been taken to reverse
the downturn in the exports of readymade garments and avoid further job losses in
the textile sector.´

01 "$   ²The government has been proclaiming that infrastructure is

the engine of growth. To boost the infrastructure, the ôndia ônfrastructure Finance
Company td. (ôôFC ) has been authorised to raise Rs 14,000 crores through tax-
free bonds. These funds will be used to finance infrastructure, more especially
highways and ports. ôt may be mentioned that µrefinance¶ refers to the replacement
of an existing debt obligation with a debt obligation bearing better terms, meaning
thereby at lower rates or a changed repayment schedule. The ôôFC will be
 ""

permitted to raise further resources by the issue of such bonds so that a public-
private partnership (PPP) programme of Rs 1,00,000 crores in the highway sector
is promoted.

0
1/
 $²Exports which accounted for 22 per cent of the GDP are expected to
fall by 12 per cent. The government¶s fiscal package provides an interest rate
subsidy of two per cent on exports for the labour±intensive sectors such as textiles,
handicrafts, leather, gems and jewellery, but the Federation of ôndian Export
Organization (FôEO) felt the measures are not enough as they will not make the
exports price-competitive and, therefore, will not boost exports. G.K. Pillai, the
Commerce Secretary, has estimated a loss of 1.5 million jobs in the export sector
alone during 2008-09 on account of the $15 billion decline in the expected exports.

01ñ

  
$$0ñ$1²The government has announced a
guarantee cover of 50 per cent for loans between Rs 50 lakhs to Rs 1 crore for
SMEs. The lockin period for loans covered under the existing schemes will be
reduced from 24 months to 18 months to encourage banks to cover more loans
under the scheme. Besides, the government will instruct state-owned companies to
ensure prompt payment of bills of SMEs so that they do not suffer on account of
delay in the payment of their bills.

M^Mñ ^

Meltdown in ôndia was mainly due to global recession as GDP growth rate
declined from 9.2% to 6.2%stock market crashed and lowered from 21000 to 7250
one of the main factor for this was pulling of Fôôs .Service sector was one of the
 "3

most affected sector .ôT &BPO sector was also very much affected because
maximum portion of its revenue comes from foreign operation. Export was
declined due to decrease in demand. However ôndia is recovering from this
meltdown ,as GDP growth rate has been increased and now it is 7.9% .FMCG
sector has witnessed a growth of 22.2%in 2nd quarter of 2009.automobile sector has
witnessed growth of 15.75% .All these indicates that meltdown is about to be
finished.

(£(Mñ


  &$ 
  
 $$$
 
$ 
 
&  


 
$$