Impact of recession on India

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.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.

Impact of recession on India

Global economic meltdown has affected almost all countries. Strongest of American, European and Japanese companies are facing severe crisis of liquidity and credit. India is not insulated, either. However, India’s cautious approach towards reforms has saved it from possibly disastrous implications. The truth is, Indian economy is also facing a kind of slowdown. The prime reason being, world trade does not functions in isolation. All the economies are interlinked to each other and any major fluctuation in trade balance and economic conditions causes numerous problems for all other economies.

Recession in the West, specially the United States, is a very bad news for our country. Our companies in India have most outsourcing deals from the US. Even our exports to US have increased over the years. Exports for January have declined by 22 per cent. There is a decline in the employment market due to the recession in the West. There has been a significant drop in the new hiring which is a cause of great concern for us. Some companies have laid off their employees and there have been cut in promotions, compensation and perks of the employees. Companies in the private sector and government sector are hesitant to take up new projects. And they are working on existing projects only. Projections indicate that up to one crore persons could lose their jobs in the correct fiscal ending March. The one crore figure has been compiled by Federation of Indian Export Organisations (FIEO), which says that it has carried out an intensive survey. The textile, garment and handicraft industry are worse effected. Together, they are going to lose four million jobs by April 2009, according to the FIEO survey. There has also been a decline in the tourist inflow lately. The real estate has also a problem of tight liquidity situations, where the developers are finding it hard to raise finances.
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.
The whole of Asia would be hit by a recession as it depends on the US economy. Asia is yet to totally decouple itself (or be independent) from the rest of the world, say experts.

The following measures can be adopted to tackle the recession:

1. Tax cuts are generally the first step any government takes during slump.
2. Government should hike its spending to create more jobs and boost the manufacturing sectors in the country.
3. Government should try to increase the export against the initial export.
4. The way out for builders is to reduce the unrealistic prices of property to bring back the buyers into the market. And thus raise finances for the incomplete projects that they are developing.
5. The falling rupees against the dollar will bring a boost in the export industry. Though the buyers in the west might become scarce.
6. The oil prices decline will also have a positive impact on the importers.
   
   

Though the politicians in India are arguing against recession hitting India, it has already started to affect Indian economy. The authorities are ruling out recession, saying that India is a country not fully dependant only on exports, it is not possible to affect India. Even though the by-products are consumed by the natives, the Indian economy has suffered great losses in business and export orders. The main industrial sectors are suffering job losses, but it is being kept as a secret by authorities to create a stable image. Among this chaos the authorities tend to claim that the fundamentals of the Indian economy are strong and there is nothing to worry about a meltdown.

It seems to be foolish to think that the repercussions will not affect India. Any slowdown in US will have its impacts on the Indian economy. India is a developing country and its existence is in inter- dependence. The recession in US has created a panic in the Indian economy. The unorganised sectors are facing layoffs. The major IT companies are about to stop its fresh recruitments. These are all indications that India is also entering a period of major recession. It seems that the authorities are covering up the facts and once the election is over the real scenario will come out.

Any way let us hope for the best.

Data Source: Internet