17782541 Ppt on Recession Virag Shah

8/8/2019 17782541 Ppt on Recession Virag Shah

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Before, understanding ´Recessionµ, we need to understand the market

economy;

A] TWO STAGES OF MARKET ECONOMY

B] TWO FACTORS OF MARKET; - DEMAND & SUPPLY



A1] Growing Market Economy

A2] Declining Market Economy

A] TWO STAGES OF MARKET ECONOMY



A1] Growing Market Economy

Starting Point = Willingness to buy



A2] Declining Market Economy

Starting Point = Unwillingness to buy



Producer wants his demand always to be high

Consumer wants his buying cost always to be low

Actually, Demand is the price at which

consumer is ready to buy andproducer is ready to sell;

B] TWO FACTORS OF MARKET; - DEMAND & SUPPLY

Producer Price

Consumer Price

Usually, we think;

Demand = Quantity

But, here Demand = Price; This is because,

Price decides the Quantity of Sales;

Competitive Price = More Demand;

In competitive Price = Less Demand;





R ecession is the economy shrinking for two

consecutive quarters (=6 months) with a

decrease in the GDP (=Gross Domestic Product)

GDP = Value of all the reported goods and services

produced by the people operating in the country

C] What is Recession?

GDP = MONEY VALUE OF {C + I + G + (X ² M)}

C = Consumables, I = Gross Investments, G = Government Spending,

X = Exports, M = Imports



GDP is a good indicator of economy; Otherindicators could be;

-Unemployment Rate

-Consumption Rate

-Actual Personal Income-Etc..

If GDP is growing, then market is growing due to

increased demand;




GDP is a good indicator of economy; Otherindicators could be;

-Unemployment Rate

-Consumption Rate

-Actual Personal Income-Etc..

If GDP is growing, then market is growing due to

increased demand;

Note: If the recession continues for next quarter, (>6

months) then we go through ´DEPR ESSIONµ

Economy;




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There is a joke that economists quote to explain the

Difference between ´Recession & Depressionµ


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Growing economy has tocome down if the

production

rate of goods & services was

more than the actualconsumption;

D] What is a Business Cycle?

What goes up; Has to comedown;



E] Why Recession happens?

E1] OVER

PRODUCTION

E2] LOW

CONFIDENCE

LEVEL





Low Confidence Level

of Millions of

consumers and

producers after they

hear many job cuts,

Demand coming down,

Companies· bankruptcy,

etc


Consumers are fearing that they may

lose their jobs; So, they have less

confidence to spend money and buy

goods; This will result in reduction

in demand in the market; Consumers

start saving money instead of spending

money; This is a downward spiral in

the economy;

E2.1] Word of mouth

E2.2] Assignable Cause

E2.1] Word of mouth

E2] LOW

CONFIDENCE

LEVEL



Low Confidence Level

of Millions of

consumers and

producers after they

hear many job cuts,

Demand coming down,

Companies· bankruptcy,

etc


Consumers are fearing that they may

lose their jobs; So, they have less

confidence to spend money and buy

goods; This will result in reduction

in demand in the market; Consumers

start saving money instead of spending

money; This is a downward spiral in

the economy;

E2.1] Word of mouth


E2.1] Word of mouth

E2] LOW

CONFIDENCE

LEVEL

Producers do not stock materials, they

reduce their productions, gets into the

cost reduction activities, worried aboutthe profitability, etc«



Bad Incidences Happening;

Example: September 11 Terrorist Attack in US;International Airport block in Thailand;

Mumbai Attacked in India;

etc«

Series of such incidences

leading into a kind of War

Please see next slides, for details on business impact;





Terrorists· Attack on 11th September in US

Created fear in people

People cancelled their travel plans

Airlines & Hotel Industries badly hit

Resulted in low occupancy rates

Airline & Hotel Industries offered discounts,

gift coupons, to attract people

But, still, no improvement in occupancy

rate

Airline & Hotel Industries started

Ćost Reductionµ activities CON TINUEDIN NEX T SLIDE



Terrorists· Attack on 11th September in US

i] Reduce No. of flights ii] Lay off peopleiii] Salary reduction to

Ńot laid off peopleµ

In flight meals reducedLow or No income to

spend and buy goods

They became careful due

to the fear of loss of job

Meals supplying company

got the hit

Catering company now,

lays off people

Demand for other goods

come downStarted saving money

instead of spending

Demand for other goods

come down

Airline & Hotel Industries startedĆost Reductionµ activities



So, you can see how the hit on Airline and Hotel

industries can affect Ún-relatedµ industries

in the end;

One industry can hit many other industries when the

confidence level of millions of consumers & producersdrastically comes down;



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Indicators to say a nation is in recession;

- People buying less stuff

- Decrease in factory production

- Growing unemployment

- Slump in personal income

- An unhealthy stock market

F] How to know recession?



It is unhealthy for any nation to be in Recession;

So, Government will take certain countermeasures

to eliminate or reduce the Effect of recession for turnaround;

Important Point:

Today, it is a market Economy

Producers;Can produce and

sell at their prices

Consumers;Can decide to

buy or not;

Both Producers and Consumers are free to act; Not a forced action

G] How to come out of recession?



Government has 2 plans

Fiscal Policies(By Govt.)

Monetary Policies(By RBI)

Hence, Government does not have direct control on Producers· & theConsumers· behavior; But, they can influence millions of Producers &

Consumers with Government·s policies;

Government influences the

economy by changing how

it (Government) spends

and collects money

RBI manipulates

the available supply of

money in the country





Government influences the economy by changing how it (Government) spends and collects money

1] Tax cuts for

businesses orfor individuals

More money

available forspending

Demand picks

up; Market

can recover;

2] More Spending

by Govt. to

create jobs

Individuals get

salary and spend

money

3] Automatic

fiscal policy;

Unemployment

Insurance

Some income to

unemployed

people to spend

FiscalPolicies




1] Reduce reserve

ratio

More money

available for bank to give loans

Demand picks

up; Market

can recover;

Government manipulates the available supply of money in the country

Monetary Policies

What is Reserve Ratio?

Each bank has to keep a high % of their assets inRBI (Reserve Bank of India). These assets do notearn any interest to banks. This money kept inRBI is called ´Reservesµ; RBI sets certain ratioof this reserves and it is called ´Reserve Ratioµ




1] Reduce reserve

ratio

More money


Demand picks

up; Market

can recover;

2] Lower the

interest rates

Individuals take

more loan


Monetary Policies




1] Reduce reserve

ratio

More money


Demand picks

up; Market

can recover;3] Use its own

reserved

money to buy

Govt. bonds

It becomes an

income to Govt.

to inject money

into the market


Monetary Policies

2] Lower the

interest rates

Individuals take

more loan



I] WOW!!!!!!!!

RBI·s Power or Government·s Power is double-edged

sword; Sometimes, their policies to recover from recession

can be counter-productive and it may further worsen the

situation;

Nation·s recession is controlled by the actions of

everybody living

in that country;

If we advise our people to save money, then, the multiplication effect is that

the demand will not pickup and recession will continue; Very peculiar!!!!! But, I

am not misguiding you; Just think from a macro level, if everybody in the

country stops spending, what will happen?





HOPING THIS TIME

RECESSION VANISHESSOON SO THAT

INDIA GETS BACK

TO ITS STRONGER GDP GROWTH RATE

OF 8% TO 10%

(THOUGH THE EXPERSTSSAY IT WILL LAST TILL

Q3 OF 2009)





IT and Real Estate Sector IT and Real Estate Sector

The key challenges faced by the industry now are inflation and the psychological impact of

the US crisis, leading the companies to hit the panic button.

Bonuses, perks, lavish parties, and many other benefits are missing as companies look tocut cost.

India's IT export growth is also slowering down

One of the casualties this time are real estate, where building projects are half-done all

over the country and in this tight liquidity situation developers find it difficult to raise

finances.



Layoffs and UnemploymentLayoffs and Unemployment

Hundreds of workers have lost jobs in diamond

jewellery, textiles and leather industry.

Companies in IT industry have stopped hiring

and projected lower manpower need.

Firms attached to the capital market are laying

off people and large companies are putting

their future expansion plans on hold.



Industrial sector Industrial sector

Government and other private companies are reluctant in starting new ventures

and starting new projects.

Projects that are halfway to completion, or companies that are stuck with cash flow

issues on businesses that are yet to reach break even, will run out of cash.

Car, bike & truck sales down

Steel plants are cutting production

Hospitality and airlines are hit by poor demand



On the issue Mr. Manmohan Singh suggested ²

A coordinated fiscal stimulus by countries that are in a position to

do so would help to mitigate the severity and duration of the

recessionµ

Ít would also send a strong signal to investors around the world.

Resort to fiscal stimulus may be viewed as risky in some situations,

but if we are indeed on the brink of the worst downturn since the

Great Depression, the risk may be worth taking,µ he added.



Corrective Steps to Check RecessionCorrective Steps to Check RecessionCorrective Steps to Check RecessionCorrective Steps to Check Recession

RBI needs to neutralise the outflow of FII money by unwinding the market stabilisation

securities that it had used to sterilise the inflows when they happened.

This will mean drawing down the dollar reserves which is important at this hour.

In the IT sector, there should be correction in salary offerings rather than job cutting Public should spend wisely and save more

Taxes including excise duty and custom duty should be reduced to lighten the adverse

effect of economic crunch on various industries



In real estate the builders should drop prices, so as to bring buyers back into the

market.

Also, the government should try and improve liquidity,while CRR and SLR must be

cut further

Indian Companies have to adopt a multi-pronged strategy, which includes

diversification of the export markets, improving internal efficiencies to maintain cost

competitiveness in a tight export market situation



Opportunities in India due toOpportunities in India due to

US recessionUS recession

Oppor tunities in India due toOpportunities in India due to


US recession may be a boon for Indian offshore software companies

The impact of recession is higher to small and medium sized (SMEs)

enterprises whose bottom lines get squeezed due to lack of spending by consumers

SMEs in the US are under severe pressure to increase profitability and

business margins to survive. This will force them to outsource and even

have M&A arrangements with Indian firms.India is going to be a great beneficiary of this trend which will minimize

the impact of the US recession on Indian industry

By March 2008, India had received SME outsourcing deals worth $7 billion

from the US as against $6.2 billion in the previous year



Major Recessionary Trends in IndiaMajor Recessionary Trends in India

and Ways to Overcome Itand Ways to Overcome It

Major Recessionary Trends in IndiaMajor Recessionary Trends in India

and Ways to Overcome Itand Ways to Overcome It

Presented ByPresented By

ViragVirag Shah.Shah.

To:To:

Dr.ZakirDr.Zakir Patel.Patel.



What Is Recession ?What Is Recession ?What Is Recession ?What Is Recession ?

A Recession is a contraction phase of the business cycle.

National Bureau of Economic Research (NBER) is the

official agency in charge of declaring that the economy is in astate of recession.

They define recession as :

³significant decline in economic activity lasting more than a few

months, which is normally visible in real GDP, real income,

employment, industrial production, and wholesale-retail sales´.

For this reason, the official designation of recession may not

come until after we are in a recession for six months or longer.



What Causes Recession ?What Causes Recession ?What Causes Recession ?What Causes Recession ?

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 loose

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.



US Crisis Hits IndiaUS Crisis Hits IndiaUS Crisis Hits IndiaUS Crisis Hits India

US faced major crisis because of -

Subprime mortgage crisis (homeloan defaults)

Rising oil prices at $100 a barrel

Global Inflation

High unemployment rates

A declining dollar value

All this slowed down the growth of the economy and as theGDP growth rate fell to 2%, recession set in.







Low GDP growth indicatingLow GDP growth indicating

Recession in USRecession in US

Low GDP gr owth indicatingLow GDP growth indicating

Recession in USRecession in US





Share MarketShare Market

More people have sold the shares in the indian share market

than they bought in the recent weeks. This has added to the fall

of sensex to lower points.

Foreign investors have pulled out from stock markets leading to

heavy losses in stocks and mutual funds

Stock broking houses are laying-off people

Because of such uncertainty many people have started saving

money in banks rather than investing

Anatomy of the economicAnatomy of the economic

depression in Indiadepression in India



IT and Real Estate Sector IT and Real Estate Sector

The key challenges faced by the industry now are inflation and

the psychological impact of the US crisis, leading the companiesto hit the panic button.

Bonuses, perks, lavish parties, and many other benefits are

missing as companies look to cut cost.

India's IT export growth is also slowering down

One of the casualties this time are real estate, where building

projects are half-done all over the country and in this tight

liquidity situation developers find it difficult to raise finances.



Layoffs and UnemploymentLayoffs and Unemployment

Hundreds of workers have lost

jobs in diamond jewellery,textiles and leather industry.

Companies in IT industry have

stopped hiring and projected

lower manpower need. Firms attached to the capital

market are laying off people and

large companies are putting their

future expansion plans on hold.



Industrial sector Industrial sector

Government and other private companies are reluctant in

starting new ventures and starting new projects.

Projects that are halfway to completion, or companies that

are stuck with cash flow issues on businesses that are yet to

reach break even, will run out of cash.

Car, bike & truck sales down

Steel plants are cutting production

Hospitality and airlines are hit by poor demand



On the issueMr.Manmohan Singh suggested ±

³A coordinated fiscal stimulus by countries that

are in a position to do so would help to mitigatethe severity and duration of the recession´

³It would also send a strong signal to investors

around the world. Resort to fiscal stimulus may

be viewed as risky in some situations, but if weare indeed on the brink of the worst downturn

since the Great Depression, the risk may be

worth taking,´ he added.



Corrective Steps to Check RecessionCorrective Steps to Check RecessionCorrective Steps to Check RecessionCorrective Steps to Check Recession

RBI needs to neutralise the outflow of FII money by

unwinding the market stabilisation securities that it had used

to sterilise the inflows when they happened. This will mean drawing down the dollar reserves which is

important at this hour.

In the IT sector, there should be correction in salary offerings

rather than job cutting Public should spend wisely and save more

Taxes including excise duty and custom duty should be

reduced to lighten the adverse effect of economic crunch on

various industries



In real estate the builders should drop prices, so as to bring

buyers back into the market.

Also, the government should try and improve liquidity,while

CRR and SLR must be cut further

Indian Companies have to adopt a multi-pronged strategy,

which includes diversification of the export markets,

improving internal efficiencies to maintain costcompetitiveness in a tight export market situation



Opportunities in India due toOpportunities in India due to


Oppor tunities in India due toOpportunities in India due to


US recession may be a boon for Indian offshore software companies

The impact of recession is higher to small and medium sized (SMEs)

enterprises whose bottom lines get squeezed due to lack of spending by consumers

SMEs in the US are under severe pressure to increase profitability

and business margins to survive. This will force them to outsource

and even have M&A arrangements with Indian firms. India is going to be a great beneficiary of this trend which will

minimize the impact of the US recession on Indian industry

By March 2008, India had received SME outsourcing deals worth $7

billion from the US as against $6.2 billion in the previous year



THANKTHANK

YOU.YOU.

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17782541 Ppt on Recession Virag Shah