IMPACT

OF
GLOBAL RECESSION
ON
INDIA
Introduction
 Fear of a recession looms over the United
States, whenever the US sneezes, the world
catches a cold.

 Indian markets crashed taking a cue from a

probable recession in the US.

 Weakening of the American economy is bad

news, not just for India, but for the rest of the
world too.
What is Recession?
 Recession 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

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

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

X = Exports, M = Imports
What is Recession?
 GDP is a good indicator of economy; Other
indicators could be;
-Unemployment Rate
-Consumption Rate
-Actual Personal Income
-Decrease in factory production
-An Unhealthy stock market

 If GDP is growing, then market is growing due to

increased demand;
What is Recession?
 There is a joke that economists quote to explain the
Difference between “Recession & Depression”

RECESSION

= WHEN YOUR NEIGHBOR LOSES HIS JOB

DEPRESSION

= WHEN YOU LOSE YOUR JOB

What is a Business
Cycle?

Growing economy has to

What
What goes
goes up;
up; Has to
to come
come come down if the production
down;
down; rate of goods & services was more than
the actual consumption;
What causes it?
 An economy grows over a period of time tends to slow down
the growth as a part of the normal economic cycle

 when consumers lose confidence in the growth of the

economy and spend less.

 Leads to a decreased demand for goods and services

 Leads to a decrease in production, lay-offs and a sharp rise in

unemployment.
Why Recession happens?

LOW
OVER
CONFIDENCE
PRODUCTION
LEVEL
Stock markets &
Recession
 Stock markets reflect the buoyancy of the
economy.
 Recession is yet to be declared by the Bureau of
Economic Analysis
 Indian stock markets also crashed due to a
slowdown in the US economy.
 Markets bounced back after the US Fed cut
interest rates
Current crisis in the
US
 Defaults on sub-prime mortgages have led to a
major crisis in the US.
 Sub-prime is a risky debt offered to people with
poor credit or unstable incomes.
 Major Banks landed in trouble after people
could not pay back loans.
 Housing market soared on the back of easy
availability of loans
Current crisis in the US

 Realty sector boomed but could not sustain the

momentum for long and collapsed due to loan
defaults.
 Foreclosures spread like wildfire putting the US
economy on shaky ground.
 coupled with rising oil prices at $100 a barrel,
slowed down the growth of the economy.
Impact of an American
Recession on India
 Indian companies have major outsourcing deals from
the US.
 India economy is likely to lose between 1-2
percentage points in GDP growth in the next fiscal
year.
 Worries for exporters will grow as rupee strengthens
further against the dollar.
 Impact of an American
Recession on India
 Experts note that the long-term prospects for
India are stable
 whole of Asia would be hit by a recession as it
depends on the US economy
 In the globalised world, complete decoupling is
impossible
 India may remain relatively less affected by
adverse global events.
Impact of an American
Recession on India
 Many small and medium companies have already
started developing trade ties with China and
European countries to ward off big losses.
 IT and IT-enabled services, textiles, jewellery,
handicrafts and leather segments will suffer
losses because of their trade link.
Impact of an Global
Recession on India

 IT sector will be the worst hit as 75 per cent

of its revenues come from the US.
 If the service sector takes a serious hit, India
may have to revise its GDP to about 8 to 8.5
per cent or even less.
Impact of an Global
Recession on India

 The following graph shows the changing

trend over the Years in all the major sectors
which contributes the overall development
of the Indian Economy
Impact of an Global
Recession on India
30

25

20

15
2007
10 2008

5 2009Proj

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re

a
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P CG

ES
rm
le I

ra
T FS
ct

O IT
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IT
FM
B

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fr
In
Impact of an Global
Recession on India

Global recession has made Indian companies

to give lay offs. The following graph shows
Layoffs in the Total Workforce of Major IT
Companies across various verticals at
different locations
Impact of an Global
Recession on India
Layoff
900
800
700
600
500
400
300 Layoff
200
100
0
S
t

ro
i
t
M

tn
of

en
TC
IB

ip
os

Pa
pi

W
icr

Sa
M
Mental Meltdown
 Shrinking jobs and Pay cuts owing to recession
have taken heavy toll on mental health of India’s
high-profile work force
 Dr. Jitendra Nagpal, physiatrist says the majority
of those people are 25-30 age group
 symptoms are loss of appetite, irritability, long
spells of silence, lack of communication with
family and friends and absenteeism
Mental Meltdown
 Although no empirical data are available on how
many people affected from recession and
suffering from work-related stress.
 But increase in number of cases is a matter of
concern for both organizations and families.
 Nagpal says this is due to unable to face realities
of failure, which develops a fear for work, he
believes this is mainly due to the lay off and fear
of losing the job.
Hard challenges IT-
BPO services
 Confidence levels appear to be at an all
time low in IT industry
 2001-03 slowdowns in the US economy saw
the world embrace the off shoring of IT and
BPO services like never before.
 Current recession threatens to reverse much
of that, with protectionism gaining ground in
the US.
Hard challenges IT-
BPO services

Level Wise Average Salary Increase over

the period of years in Indian IT companies
and the projection now in the year 2009
 To
p
Ex

0
2
4
6
8
10
12
14
16
18

Se ec
ni ut
or iv
M e
an
Ju M ag
id
ni
or d le
em
M en
services

M t
an an
ag ag
er em
/S en
up t
er
vi
so
r/
P.
..
2008
2007

2009 Proj
Hard challenges IT-BPO
Out of America
 Old bugbear, protectionist legislation, has come
back to haunt the industry
 Now $52 billion Indian IT services juggernaut is
worried.
 US Senate voted to restrict the hiring of foreign
workers (H-1B visa holders) by banks that are
receiving government bailouts under the
Troubled Assets Relief Program (TARP).
Out of America
 The recession has forced the US to become
protectionist
 "Most Fortune 100 companies have a large
portion of their business outside the US.
 This will restrict them to do most of the
company to outsource and this will create lot
of job opportunities for Americans.
Bad protection
 Protectionism will be bad for both the US and
India
 The Smoot-Hawley Tariff Act of 1930 is an
example of how a recession deepen to a
depression.
 Economists now believe that the Great
Depression was deepened as a result of this
legislation.
 Again a similar situation could arise now.
Counter strategy     
 There is already a shift in business strategies of
corporate India
 Large IT and BPO firms have started looking at
other markets like Europe, and even the domestic
market.
 Indian companies will have to adopt a multi-
pronged strategy
 In case of a full US recession, the onsite staffing
business will see a decline in sales and profit.
Counter strategy    
 Recessions at this juncture may not last for more
than two to three years
 Smart companies will continue investments to
take advantage when recession ends.
 India will have to spend a lot more to develop
market and supply chain links in alternate
markets like Asia and Europe.
 Experts say the export dependent sectors need to
re-focus on local demand and income from non-
dollar economies.
Can India be a market
option?
 IT firms can definitely find a market in India
 India has a huge, small and medium enterprise
base and it is the right time to tap this segment.
 As for automotive components, consumer
electronics and mobile devices, they have already
found a market in India
 They have also started looking at tie-ups in China
and other BRIC countries.
Consequences of Global
recession on India job
market
 Worst affected because of Global recession will
be service industry of India
 Service industry contributes about 52% to India's
GDP growth.
 People may say that there is going to be a huge
job loss due to recession
 There is no threat to the skilled people
 NASSCOM said India will have a shortage of
about 5 million skilled people in IT/ITeS
Consequences of Global
recession on India job
market
 India's travel, tourism and power industry is
going to grow at a better rate.
 India has a huge population so a huge
consumer base so we don’t have to always
depend on US for our growth
 India's GDP is expected to grow at the rate
of 8.5-8.9 % which is again way above the
growth rate of US
Consequences of Global
recession on India job
market
 Its time to be innovative and more effective to
increase the over all efficiency and go for systematic
cost cutting to balance the rupee effect.
 In West Africa goods at departmental stores are sold
at the rate 5 times than Indian price and Indian
goods
 It’s an excellent opportunity for our exporters.
Conclusion
 The overall impact of a Global slowdown on
India would be minimal
 Unlike the rest of Asia, India is a strong domestic
demand story
 So any slowing in the US is likely to have a more
muted impact on India.
 Strong growth in domestic consumption and
significant spending on infrastructure are the two
pillars of India’s growth story
Conclusion
 Corporate India is also learning to master the
art of efficient capital management and
delivery of value-added services to sustain
profit margins.
 Interest rates are expected to be stable
primarily due to control over inflation and
proactive measures undertaken by the RBI.
Conclusion
 The electoral mandate may force a course
correction.
 The intervening period of more than three
months can be one in which the economy
and mass livelihoods suffer damage that can
take too long to repair.
Conclusion
HOPING THIS TIME RECESSION
VANISHES SOON SO THAT INDIA
GETS BACK TO ITS STRONGER GDP
GROWTH RATE OF 8% TO 10%
(THOUGH THE EXPERSTS SAY IT
WILL LAST TILL Q3 OF 2009)
THANK YOU