The Recession of 20082009: How Painful Will

8/14/2019 The Recession of 20082009: How Painful Will

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The Recession of 2008-The Recession of 2008-

2009: How Painful Will2009: How Painful Will

It Be?It Be?

Made by Saurabh Gupta

Bcom vocational (insurance 2nd year)


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What is Recession?What is Recession?

In economics, the term recession generally describes theIn economics, the term recession generally describes thereduction of a country's Gross Domestic Product (GDP) for atreduction of a country's Gross Domestic Product (GDP) for at

least two quarters. In the other words, recession is reduction inleast two quarters. In the other words, recession is reduction in

economic activities in the country.economic activities in the country.

RecessionRecession


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Recession and its impacts on insurance sector in

India.


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Effects of RecessionsEffects of Recessions1. Credit crunchesBanks may suddenly stop or slows down lending activity

that means many persons might not purchase any sort of properties which

might leads to reduction in sale of many fire insurance policies.

2. Reduction in savingsRecession directly effects the income of the person

which in result decrease the amount of saving and that leads to reduction in

sale of insurance policies.

3. Unemploymentwhen a person is available to work and currently seeking

work, but the person is without work. When the person does not have

employment then he/she is not able to save which badly effects insurance

sector.

4. Early entrants are not getting jobs.

5. Companies are closing.

6. Sales are not picking up.

7. Suddenly cash has evaporated from the market.

8. Profitability is seriously hit.


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(In billions.)

$0

$5

$10

$15

$20

$25

$30

'96 '97 '98 '99 '00 '01 '02 '03 '04

Investments in india in different types of policies ofInvestments in india in different types of policies of

LIC and other insurance companies.LIC and other insurance companies.

Source:- IRDA


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Source: Commerce Department, Bureau of Economic Analysis

Savings Rate in indiaSavings Rate in india

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

J J A S O N D J F M A M J J A S O N D J F M A M* J* J

July 2008:

1.2%

2007 2008 2009


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$300

$320

$340

$360

$380

$400

A S O N D J F M A M J J A

Source: IRDA

Aug. 2008:

$381.2 billion

2008 2009

REDUCTION IN SALES OF INSURANCE SECTORREDUCTION IN SALES OF INSURANCE SECTORTotal retail sales in billions of dollars, seasonally adjusted.


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Source: IRDA

REDUCTION IN SALE OF ULIP POLICIESREDUCTION IN SALE OF ULIP POLICIES

100

102

104

106

A S O N D J F M A M J J A S O N D J F M A M J J A

Aug. 2008:

100.8

2007 2008 2009


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500

600

700

800

900

1,000

1,100

1,200

2006 2007 2008

Source: TIMES OF INDIA

Sales of new insurance policies.Sales of new insurance policies.

July 2008:

515,000

P h i l fP h i l f


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2004 2005 2006 2007 2008

Percentage change in sale of newPercentage change in sale of new

policies.policies.

-2%

0%

2%

4%

6%

8%

10%

12%

2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q0


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Source: Economic times

Deficit in Indian Insurance TradeDeficit in Indian Insurance Trade

$0

$10

$20

$30

$40

$50

$60

$70

J A S O N D J F M A M J J

2007 2008

July 2008:

$62.2 billion


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Source: Hindustan times

Consumer Confidence IndexConsumer Confidence Index

2007 2008

40

50

60

70

80

90

100

110

Aug Sept Oct Nov Dec Jan Feb Mar Apr May June July Aug

Aug. 2008:

56.9


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In percent, seasonally adjusted:

4.5%

5.0%

5.5%

6.0%

6.5%

A S O N D J F M A M J J A

Source:Department of Labor

2008 2009

INDIAS Jobless RateINDIAS Jobless Rate


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Source: Indian Workforce Commission

Increament in Unemployment Rate in indiaIncreament in Unemployment Rate in india

due to recession.due to recession.

3.5%

4.5%

5.5%

6.5%

7.5%

8.5%

June

2005

June

2006

June

2007

June

2008


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How to come out of Recession?How to come out of Recession?

It is unhealthy for any nation to be in Recession;It is unhealthy for any nation to be in Recession;

Government will take certain countermeasures to eliminateGovernment will take certain countermeasures to eliminate

or reduce the effect of recession for turnaround;or reduce the effect of recession for turnaround;

Important Point : Today, it is a market Economy,Important Point : Today, it is a market Economy,

Producers can produce and can sell at their prices andProducers can produce and can sell at their prices and

Consumers;can decide to buy or notConsumers;can decide to buy or not

Here bothHere both Producers and consumersProducers and consumers are free to act withoutare free to act withoutforced action.forced action.


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Basic DontsBasic Donts Do not take too much vacation.Do not take too much vacation.

Do not ask for promotion. Dont emphasize(ask) for huge salaryDo not ask for promotion. Dont emphasize(ask) for huge salary

increase. If you ask, you may soon not have a job. Remember, thereincrease. If you ask, you may soon not have a job. Remember, thereare people available with better skills at lower salary levels.are people available with better skills at lower salary levels.

Do not complain.Do not complain.

Do not waste time gossiping.Do not waste time gossiping.

Dont resist a transfer.Dont resist a transfer.

Dont resist travel.Dont resist travel.

Dont resist a salary cut if done with valid reasons.Dont resist a salary cut if done with valid reasons.

Dont resist extra time at office if needed.Dont resist extra time at office if needed. Dont change jobs in this market. It is too risky.Dont change jobs in this market. It is too risky.


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Basic DosBasic Dos Be punctual to office.

Ensure you pick up new skills. Do something innovative.

Take training programs.

Always be engaged & productive.

Ensure you deliver as per deadlines.

Organize team meeting to improve productivity.

Ensure that you contribute to knowledge forums etc..

Work doubly hard and save money for your company.

Your boss is always right and is the best (During recession

or no recession).


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DailyDaily ExpensesExpenses Take a list of your expenses.Take a list of your expenses.

Tick Need to have vs. Nice to haveTick Need to have vs. Nice to have

Knock off all Nice to have expenses Right Now !Knock off all Nice to have expenses Right Now !

Assuming you didnt have a job Plan for cash to surviveAssuming you didnt have a job Plan for cash to survive

for 24 months. considering, this recession will take at leastfor 24 months. considering, this recession will take at least

24 months to come out !24 months to come out !


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Government Plans against the Recession?Government Plans against the Recession?

Hence, Government does not haveHence, Government does not have direct controldirect control on Producers &on Producers &

the Consumers behavior; But, they can influence millions ofthe Consumers behavior; But, they can influence millions of

Producers &Consumers with Governments policies;Producers &Consumers with Governments policies;

Government has 2 plans

Fiscal Policies(By Govt.)

Monetary Policies(By RBI)

Government influences theeconomy by changing howit (Government) spends

and collects money

RBI manipulatesthe available supply ofmoney in the country


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Govt control through RBIGovt control through RBI

Repo RateRepo Rate:: Repo rate is the rate at which the banks can borrow moneyRepo rate is the rate at which the banks can borrow moneyfrom a central bank of the country in order to avoid shortage of funds.from a central bank of the country in order to avoid shortage of funds.

It is also a financial & economic tool in the hands of government toIt is also a financial & economic tool in the hands of government tocontrol the availability of money supply in the market by altering thecontrol the availability of money supply in the market by altering the

repo rate from time to time.Current repo rate is 5.0 %.repo rate from time to time.Current repo rate is 5.0 %.

Reverse Repo Rate :Reverse Repo Rate :Reverse Repo rate is the rate at which Reserve BankReverse Repo rate is the rate at which Reserve Bankof India (RBI) borrows money from banks. Banks are always happy toof India (RBI) borrows money from banks. Banks are always happy to

lend money to RBI since their money are in safe hands with a goodlend money to RBI since their money are in safe hands with a good

interest. Current rate is 3.0 %.interest. Current rate is 3.0 %.

CRR :CRR :Cash Reserve Ratio is the amount of money that the banksCash Reserve Ratio is the amount of money that the banks

have to necessarily keep with the RBI.The RBI pays the interesthave to necessarily keep with the RBI.The RBI pays the interest

on the amount kept with it.on the amount kept with it. Current CRR rate is 5.0 %.Current CRR rate is 5.0 %.


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Government Fiscal PoliciesGovernment Fiscal Policies

Government influences the economy by changihow Government spends and collects money

1] Tax cuts forbusinesses or

for individuals

More moneyavailable for

spending

Demand picksup; Market

can recover;

2] More spendingby Govt. to

create jobs

Individuals getsalary and spend

money

3] Automaticfiscal policy;Unemployment

Insurance

Some income tounemployed

people to spend

FiscalPolicies


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Government Monetary PoliciesGovernment Monetary Policies

1] Reduce CRRfor banks

More moneyavailable for bankto give loans

Demand picksup; Marketcan recover;

Government manipulates the available supplof money in the country

MonetaryPolicies

2] Lower theRepo & Reserverepo rates`

Individuals takemore loan


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What about India in global market crisesWhat about India in global market crises

ost of the developingconomies like China,

India;

Currently,Slow Down

Stage; Not yetin Recession

ost of the developedeconomies like US,

Japan, Germany, etcCurrently,

in Recession

GDP GrowthRate Down; But,

Still expected to bAround 6% in India

GDP GrowthRate Negative;


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Dont worryDont worryWhat goes down will always go up, Markets will

rebound these tips will prepare you to be awinner !!

HOPING THIS TIME RECESSION VANISHES SOON SO THAT

INDIA GETS BACK TO ITS STRONGERGDP GROWTH RATE OF 8% TO 10% .

(AS PER THE EXPERSTS OPINIONS

IT WILL LAST TILL Q3 of 2009)..

You can be updated yourself with the current economic condition throughBusiness TV-channels,News,News papers.


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The Recession of 20082009: How Painful Will