GLOBAL RECESSION AND INDIAN ECONOMY

GLOBAL RECESSION AND INDIAN ECONOMY
DR. PRAVINABEN PANDYA

In macro economics, a recession is a decline in a country's gross domestic product (GDP), or negative real economic growth, for two or more successive quarters of a year. An alternative, less accepted definition of recession is a downward trend in the rate of actual GDP growth as promoted by the business-cycle dating committee of the National Bureau of Economic Research The world is embroiled in a recession. Banks are failing, jobs are disappearing, wealth attached to property and stocks is evaporating. The hopes of so many that rest upon saving for the future is now destroyed. All those years of working and saving for retirement, wiped out by the recession in the past few months. The mass of people feel hopeless and worried about their future. Only the devotees of Lord Krsna are above the fray. This is a great time for spreading the message of Lord Caitanya. Lord Krsna says in the Gita, that four kinds of pious men begin to render devotional service unto him - the distressed, the desire of wealth, the inquisitive, and he who is searching for knowledge of the Absolute (BG 7.16). When a pious person is in distress, he will question his existence. Why do I work so hard to loose everything? Why do I have to struggle so hard to achieve flickering happiness? And, when he comes in contact with a Vaisnava and hears the true meaning and purpose of life, he begins his journey back to Godhead.
On the other hand, an impious soul will never accept Krsna as the Supreme Personality of Godhead. We have seen and heard Srila Prabhupada preach to many of the most respectful non-devotees of the world. No matter what Srila Prabhupada said, they never would accept. Still, these greatly fortunate demons, have received the pure transcendental sound vibration from the lips of a pure devotee of Krsna. And, it will have an effect if not in this life, then the next. Just as when medicine is taken by a patient, it takes time to see the result. The Holy name of Lord Krsna is His most powerful energy and it can overcome any influence of kali yuga. So, we who are followers of Srila Prabhupada should show compassion for those who are suffering as a result of what is happening in the world at this moment. We have an opportunity to approach many people who are looking for answers to their suffering, and they will be eager to hear. We have the the finial solution to their problems. It is to take to this process of Krsna Consciousness and go back home back to Godhead. We cannot overcome the dictates of the material energy. It is best to concentrate on purifying our selves and trying to save others.
IMPACTS OF RECESSION ON ASIAN COUNTRIES:---
The stagnation/decline of the traditional engines of growth. ( US, Euro Area, Japan, UK, Canada and Australia-all hovering less than 2% GDP growth, not just in the past 3-4 yrs but likely to be continue so, in the near future. There are a handful who are expected to have negative growth!) -the emerging engines of growth are certainly the BRICA region- BRIC nations and the ASEAN region! Contrary to perception, those countries with huge population -are likely to be more stable economies in future, as one can expect a much more robust domestic economy-and not be entirely dependent! ( A set of 11 emerging nations qualify here!!) -The emergence of SMEs and micro enterprises in the role of developing economies. -Perceived threat to nations like Japan where increased 'savings rate' -has throttled 'consumer spending' within the domestic economy. Add to it, the low population growth-and the resistance to immigrants, the nation is fast ageing!!

IMPACTS ON INDIAN ECONOMY:---
In the globalized market scenario, the impact of recession at one place/ indusrty/ sector perculate down to all the linked indusrty and this can be truly interpreated from the current market situation which is faced by the world since approx 2 month and still the situation is not in control inspite of various measures taken to fight back the recession in the market.
It is certainly true that the bad news from abroad – which shows no signs of easing up – has impacted upon domestic stock markets, investor expectations, and the exporting industries in particular. But it is also unfortunately the case that our own economy has been showing several causes for concern even before that external bad news started pouring in. There was the accelerating inflation, which particularly hit food and other items of essential consumption, and recently exacerbated by the increase in petrol prices. In addition there have been signs of decelerating growth, especially in industrial activity, and these cannot be ascribed only to reduced export orders, but are more likely to have domestic causes. Consider the index of industrial production, presented in Chart 1 (with base year 1993-94). The general index peaked in March this year, fell quite sharply thereafter and subsequently has been more or less flat at the lower level. This pattern essentially reflects the behaviour of the manufacturing index, which accounts for around 80 per cent of the weight of the general index. Such a pattern tends to be obscured by the standard way of presenting the industrial growth data, in terms of year-on-year monthly rates.
What is especially disconcerting is the evidence on electricity production, which shows hardly any increase at all but simply fluctuations around a flat trend for the past 18 months. Since electricity still remains substantially undersupplied, and its shortage can create supply bottlenecks for other production, this stagnation is worth noting. The use-based classification industrial production suggests that the slowdown in growth is spread across several important sectors. Chart 2 provides the evidence on recent trends in production in the basic, capital goods and intermediate industries. Once again, both basic goods and intermediate goods, which have strong backward and forward linkages with other industrial activity, have been stagnant and hardly increased at all over the past one and half years. The production of capital goods shows much greater volatility, with a sharp increase in March 2008 but decline thereafter from that peak.
Consumer goods are the most likely - and the first - to be directly affected by slowing demand in domestic and export markets. Chart 3 show that this too is not a recent problem, but one which has been clearly evident in the economy at least since the beginning of the current calendar year. The production of consumer non-durable goods, which account for the bulk of consumer goods (with more than 80 per cent weight) peaked in January 2008 and have fallen continuously since then. Consumer durables, onthe other hand, had benefited from a credit-financed boom that had elements of unsustainability that are eerily similar to the US credit-driven consumption boom. The significant expansion of retail credit, especially credit card debt and hire purchase schemes, had generated demand for consumer durables and automobiles, but such credit-driven expansion became increasingly problematic as interest rates increased and lenders became more concerned with the viability of this rapidly growing consumer debt.
The badly hit setor at present being the financial sector, and major issue being the "LIQUIDITY Crises" in the market. To curb the liquidity crises the RBI will continue to initiate liquidity measures as long as the current unusually tight domestic liquidity environment prevails. The current step to curb these being lowering of interest rates and reduction of PLR.However, the big-picture story remains unchanged – all countries in the world with current account deficits and strong credit cycles are finding it difficult to bring cost of capital down in the current environment. India is no different. New measures do not change our view on the growth outlook. Indeed, we remain concerned about the banking sector and financial sector. The BOP- Balance of Payment deficit – at a time when domestic credit demand is very high – is resulting in a vicious loop of reduced access to liquidity, slowing growth, and increased risk-aversion in the financial system.
Global recession hurting India ;-
The major impact of recession or economic slowdown is with the small exporters and importers in the country as most of them at he service sector in the IT industry has been the victim of global downswing as the profitability in most of the segments have reduced a lot.re facing the problem of heavy duties." For them it would probably end up as a positive impact while for larger IT companies it would get balanced out by reduction of outsourcing and increase for companies who actually are going to cut costs in order to meet the criteria of not going into loses for the impending slowdown." The problems of US slowdown has not only impacted the IT sector on all edges, it has perhaps made the Indian manufacturing and energy sector worrisome too. The challenges that Indian industry is encountering with is a universal problem of rising energy and fuel cost. It is always followed that as the energy prices go up there is a probability of recession. The second factor that we see today is the global developments in India Indian economy is insulated to some extent from the global environment, which is really not true, because we can very clearly see the impact of that for the past few months where there is definite indication of economic slowdown in the country. The slowdown is taking place as the result of rise in the costs of the materials all over the world, surging commodity prices, the impact of surging foodgrain prices. India's present economic crisis that has hit most of the countries across the world has been created by the investment bankers, Britain-based NRI businessman Lord Swraj Paul said in an event organized by FICCI Ladies Organization (FLO) in the national capital recently. Investment bankers have gone overboard by giving loans to people, which were more than their repaying capacity," Paul told reporters during the question answer session of the event. This crisis could be worse than what has been imagined, as the banks have not come out with the truth, The Indian economy is much less dependent on the external markets than the Chinese economy, the panel said in its review of the economy. While some export demand compression is likely to put an additional burden on our exports of goods and services, it is unlikely to be large enough to significantly depress growth. However, the flip side to this is that the pressure on prices of oil, food and other raw materials is likely to continue, making inflation management in 2008-09 quite challenging, The Rangarajan panel had already revised downward economic growth in India to 8.5 per cent for fiscal 2008-09 from the over 9 per cent rate projected by the government earlier. The independent economic think-tank, the Centre for Monitoring Indian Economy (CMIE) had, however, projected a 9.5 per cent growth rate for the economy. The Rangarajan panel had cited the slowing of manufacturing expansion following several rounds of monetary tightening, and sluggish output growth in power and mining as factors affecting growth. Finance minister P Chidambaram also told a meeting in Gurgaon that a slowdown in the US may have some impact on India's growth drastic. If the US goes into recession there will be global consequences and India will have to bear part of the global consequences," Chidambaram said. While the government is confident of maintaining growth momentum despite a surge in the value of the rupee against the dollar, record global crude oil prices and rising food prices are posing problems for policymakers. Global economic recession badly affects the Indian economy & industrial growth. Since we know that worlds economy is badly affected by the disastric ends of the worlds top bankers. Due to their Bankruptcy, their is scrcity of money in the market, also spread distrust among banks. So in the investments in the Indian s...
India nowhere close to recession: Chidambaram
While reiterating the strong position of the Indian economy amid global financial turmoil, Chidambaram expressed hope that the public had seen the worst as far as price rise in concerned. Commenting on the global economic crisis the minister said, “We must banish the fear of recession for Indian economy as we have weathered the global financial crisis. Global recession’s impact on economy has been muted as economic growth in India has been driven by domestic demand. While speaking on the effects of the global financial crisis on the Indian economy, Chidambaram admitted, “People should be ready for temporary effect of the global economic slowdown. The growth outlook remains quite robust yet this year it would be moderate at 7.9 percent. The foreign exchange reserve and foreign investment have been affected by it. Accepting the liquidity crunch in the economy, Liquidity has been tightened in the market. RBI has infused money into the market to meet the liquidity demands Asking people to repose their faith in the Indian economy, the Finance Minister commented, “Indian economy has been resilient to foreign shocks.” Talking about inflation, Chidambaram hoped that the worst is over. He said that RBI has taken measures like slashing interest rates and repo rate to curb inflation. As a result, inflation has come down from double digit figure to a single digit figure and commodity prices have started to ease since August, If the rate of inflation continues to decline, policy rates may also moderate and the bias in favour of growth may deepen... RBI's policy is now biased towards stimulating growth, Every economy will feel the effect of the US recession as it gets stronger. India will loose some jobs in the technology sector for programmersand such but will see an increase in back office workers and phone centers as US companies try to cut costs more and ship these jobs to India. legal aids will be required to prepare breafs for bankruptcy courts and defaulted credit card, home and auto loans. It is just starting and the ride from the top will be long. India will also see an increase in medical research centers and boitech medicine developement research. over all the out look for India in the next ten years is good if they can start focusing on infastructure like airports and highways. There new automobile will take the rest of the world by storm. but catch on slow here in the USA. need to develope a minivan type for around $4000 will be a hit in all the developing countries especially China.
Adverse Impact on Domestic Industry Next Year:--
According to both officials and industry sources here, the timing of the removal of QRs is disadvantageous for the Indian Industry as high oil prices may slow down the economy in the coming months and the industrial nations may like to export more at the cost of the developing countries. Indian industry that is already facing a stiff competition from both the developed countries as also China, Malaysia and some other East-Asian countries, will be facing further problems in selling their goods in the overseas market.In fact, in the exercises for formulating 2001-02 budget, the government this time is taking note of these two factors quite seriously, the impact of cheap imports on the dometic industries till now and the extent of the effect of the QRs removal on the domestic industry during the next financial year. The Federation of Indian Chambers of Commerce (FICCI) has already submitted its findings to the government on the adverse effects of cheap imports on the domestic industry. The Confederation of Indian Industry has also drawn the attention of the finance ministry following some indiscriminate imports of such goods. Decline in industrial growth rate raises the question whether it is going to be purely a temporary and irregular change or an indication of recession. A recent study made by the Institute of Economic Growth observes that the industry has indeed entered into a new phase of industrial recession. According to this study, the index of industrial production had passed through cycles in both pre and post reform periods and it appears that so far there is no long run change in the industrial production from structural reforms. 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.
CONCLUSION—
A slowdown in the US economy is bad news for 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 2 to 3 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. Right now exporters are feeling happy because dollar is strong against rupee but if rupee strengthens further against the dollar they may be in pressure, 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 bringing 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. Asia is yet to totally decouple itself (or be independent) from the rest of the world. Due to exposure of media & sensational news(because sometiems I feel media helps to deepen the panic more) common people in India is feeling insecure but frankly this is not the time to panic that much. No doubt today gloabal trade has become more interdependant and interconnected so the ripple effect had arrived but will settle down with time Recession is an accessory of capitalism which comes with its tool to manipulate business situation, that is the stock market. De link stock market to economy and there will be no recession or boosted situation. What lead the oil price increase in the world for last 4 or 5 years? There you will find the reason for recession. Not anywhere else. Oil is the major energy source for the world and its increase effect all the world in a similar way. To add the worry, US dollar become weak and all the currencies linked with it... So, when there is an unjustifiable oil price increase, a recession was on the making. Then, how the ’Economic think tanks’ at wall street could not identified it earlier?? As on today, the Sensex increased 6 plus percentage. Wondering what made this 6 percentage of economic growth in two days time...the same people will cry if the stock goes down tomorrow and ask government to intervene. The wise foreign investors will again go away with their money as long as there are people to give out their hard earned money on speculation even seeing economic death face to face..