PROJECT REPORT

 
ON

 “IMPACT OF RECESSION ON FRESHER’S IN CORPORATE

WORLD”

Submitted in partial fulfillment for the award of degree of

Master of Business Administration

SESSION: 2008 – 2010

   

Submitted By:

  Hariom

MBA 4th Sem

426/MBA/08

PDM COLLEGE OF ENGINEERING, BAHADURGARH

AFFILIATED TO MAHARSHI DAYANAND UNIVERSITY, ROHTAK

 DECLARATION

I, Hariom Roll No. 426 class MBA 4 th SEM of PDM college of Engineering, Bahadurgarh, hereby
declare that the project entitled “ IMPACT OF RECESSION ON FRESHER’S IN
CORPORATE WORLD” is an original work and same has not been submitted to any other
institution for the award of any other degree. The interim report was presented to the supervisor on
________________ and the pre submission was made on _______________. The feasible suggestion
has been duly incorporated in consultation with the supervisor.

Countersigned

Signature of supervisor Signature of the Candidate

Forwarded by

Director/Principal of the institute  

 ACKNOWLEDGEMENT

“Acknowledgements are a bit like acceptance speeches; Predictable but from the heart so
here is some predictable prose direct from the heart.”
A successful project can never be prepared by the single efforts of the person to whom project is
assigned, but it also demand the help and guardianship of some conversant person who helped the
undersigned actively or passively in the completion of successful project.

I would like to extend our sincere gratitude toward Mrs. Nandita Rathee, Head of
Department, Management Studies.
I also express my heartfelt gratitude to Ms. Poonam, lecturer of management studies,
under whose guidance I undertook this project, for extending the advice and direction that is
required to carry on a study of this project, and for helping me with the intricate detail of the
every step of the way. It is worthless if I do not pay my sincere thanks to all faculty members
for their positive co-operation to complete my project in a significance manner. This work is
the result of the direct and indirect co- operation of the various persons to whom we wish to
express our appreciation and gratitude.
And lastly I would like to thanks to the all my friends, my seniors, my parents and all
the persons who have helped me in completing my project report.

Hariom
 Table of Content
S. No. Particulars Page No.

1 Introduction

2 Significance of the study

3 Review of Literature

4 Objectives of the study

5 Research Methodology

6 Effect of Recession On different

Countries

Effect of Recession On different

Industries

7 Data Analysis & Interpretation

8 Findings

9 Suggestions

10 Limitations

11 Conclusion

Bibliography

Annexure
 RECESSION

INTRODUCTION

Recession has become the prime issue of the hottest debate around the globe. This has
turmoiled our global economy resulting in to shutting down of twelve major financial players
of the world’s most powerful nation thereby resulting into the loss more than lacks of job all
around the world. What is the reason behind it? What were those policies and practices which
has given birth this catastrophic situation?

MEANING
A drastic slowing of the economy. The Americans, who are good at making precise
definitions, often apply the term to a situation where gross national or domestic product has
fallen in two consecutive quarters. A recession would be indicated by a slowing of a nation's
production, rising unemployment and falling interest rates, usually following a decline in the
demand for money. A popular distinction between recession and depression is: 'Recession is
when your neighbour loses his job; depression is when you lose yours.'

IMPACT OF RECESSION

Recession is often considered as a synonym to depression, in emotional terms. It’s a fact that
recession is decelerated phase where everything goes downhill and everything goes berserk.
To reconcile, recession means decline, downturn, collapse or depression, in common
understanding. In short, recession is decline in a country’s GDP growth for two or more
consecutive quarters of a year and is a phase where profits, employment, investment spending
and household incomes experiences a regular fall-down.

As we discussed that recession is negative economic growth for two consecutive quarters, it
signifies a fall in real GDP, lower National income and lower National Output. Recession has
negative impact on economic growth and makes unconstructive impact on the nation. The
impact of recession is often characterized by following factors – impulsive rise in
unemployment, rise in government borrowing, sharp decline in stock markets and share
prices.
It was in news that almost thousands of employees of a private aircraft went jobless as the
company fired them from job. They were terminated for no personal reasons but because the
company is reeling under the pressure of recession and was not able to cope up with the
expenses of their salaries and perks. Recession leads to impulsive rise in unemployment and
it can be viewed in every sector and industry. The problem of unemployment in India is deep-
rooted and it intensified to extra quarters, in phases of recession.

In recession phase, government is always pressurized to large extent as it comes like an

unwanted bad news for them. It results into lower tax revenues because of lower income tax
and lower corporation tax revenues. Government is expected to spend higher for
unemployment benefits and so it lead to higher borrowing to make both ends meet. Recession
becomes a pessimistic phase for the ruling government as it is burdened up with extra weight
of borrowing.

Recession makes a resounding impact on share markets and so it affects share prices to great
extent. It is because recession leads to lower profitability and also lower dividends. It makes
share market look shaky and share-holders often face disappointment. Many a times shares
fall sharp as an anticipation of predictable financial disaster, arising out from the fear of
recession. It is not always that share prices fall as there can be any other reasons for their
decline.

A recession will reduce the appropriate demand and correspondingly will enforce pressure on
the prices and will rage out price-war in the market. To retain consumers, the price-wars may
lead to decline in rates and so it might results into lower inflation rates. Due to lower
spending capacity, the lowered prices may sound impossible for many but the fact is that
recession leads out cut-throat competition and that sometimes affects the quality of the
product.

Due to recession phase, the investor always feels finicky and shaky to invest as the fear of
acquiring substantial profits increases manifold. The investment in the market becomes more
unstable and it affects the economic growth. It leads to lowering of economic growth and
simultaneously other related aspects.
ECONOMIC RECESSION: STUDENTS WORRIED ABOUT JOBS

Just 6-7 months ago, some people in India thought that the country will be free from the
negative impact of ongoing global economic recession. However, it is now clear that India is
suffering from the same problem too. In fact, the export sector has been the hardest for the
country. According to some reports, the export sector is going to lose 1.5 jobs by March
2009. So, many fresh graduates or even highly skilled and experienced educated workers are
worried about their future prospects.

 I have just mentioned that the export sector has been badly affected by the global economic
recession. Another problem is that things are not getting better in other countries. India
received a lot of money in foreign exchange through the remittance sent by NRIs. Weaker
global economy means that there will be fewer opportunities to work in other countries. In
India too, big companies are trying to cut their expenses and they are a bit reluctant to go for
any expansion activities. I remember that in 2007 and in the first few months of 2008, we saw
a lot of reports about the expansion of Indian companies like Tata in other countries

The Economic Boom is over?

A very bad news for Indian highly educated job seekers is that

India’s own economic boom is coming to a halt. Yes, I clearly remember that in 2006 and
2007, many people used to think that it was just a matter of time that Indian economy
achieved double digit growth. Many observers like me, used to say that the high economic
growth would continue for a long time in India. However, now days, hardly anyone I the
country is concerned about high economic growth.

Future Looks Bleak

In January 2009, around 80,000 jobs were lost in US tech companies. Indian companies
became specialized in serving US tech companies through outsourcing. That means that any
significant fall of revenue among large US companies like Microsoft can cost many jobs in
India. An interesting report: Lose Your Job at IBM? Reclaim It In India . IBM has offered its
US workers they could go to India if they liked and take up jobs in IBM India under local
salary and local terms and conditions. This may bring more anxiety for fresh graduates in
India as if some American workers really come to India for doing jobs then; it will result in
having fewer opportunities for Indian students.
Students are less selective now

Perhaps the only good thing that is coming from the economic recession is that Indian
students and workers are becoming less selective. Gone are the days that big companies
would go after the students for getting them in their offices. Now, officials of big local and
multinational companies have to started feel nervous about the future. So, fresh graduates are
now trying to pursue the companies. It is natural that the students will be less choosy about
the companies, salary and even the nature of jobs. Well, just 2 years ago, the companies were
in a rat race to attract students from top universities. Now, it is just the opposite.

Lack of entrepreneurship

One of the things that is absent among most students and educated people in India is lack of
entrepreneurship mentality. They are too obsessed with doing jobs rather than taking a risk
and setting up a venture. I think that this is a very good time for Indian government to address
this issue. It will not change overnight but there should be a concerted effort among the
government, universities and the media to motivate fresh graduates about this matter.

Finally, I just want to say that Indian government should take this matter very seriously. The
students need to have a change in mind set too.
People in industrialized nations are far wealthier than people living in less developed
countries. But still these wealthier nations suffer most during the slowdown period. There
was boom in 2007 and then the slowdown started showing its presence prominently in the
year 2008. Before economies could take it seriously, there was recession. This is what
explained by Business Cycle which says everything which goes up is bound to come down.
All these activities are studied under macroeconomics which is concerned with the behavior
of economy as a whole. This is not the first time world economies are facing slowdown, there
has been 5 recessions in the last 30 years around the globe which includes the most
remembered “Great Depression”. Inflation, Employment Cuts, Price hike, low demand etc is
all characteristics of slowing down of the economy. The main problem faced by the countries
is not nuclear threat but high inflation rates.

Before starting with the current slowdown of the world economies, lets have a look at the
scenarios of 1980’s and 1990-91 recessions. Lets observe the policy mix taken by the
economies like US and Europeans at such situation.
 HISTORY

The 1980’s Recession and Recovery

Economic policies in the united states in the early 1980’s, departed radically from the policies
of the previous two decades. First, tight monetary policy was implemented at the end of 1979
to fight an inflation rate and then, in 1981, an expansionary fiscal policy was put in place of
tax cuts and increased defense spending.

In 1973, the US and rest of the world were hit by first oil shock, in which the oil exporting
countries more than doubled the price of oil. This led to rising inflation which was extremely
unpopular. In October 1979, the Fed acted, turning monetary policy in a highly restrictive
direction. The monetary squeeze was tightening in the first half of 1980, at which point the
economy went into a mini recession. The reason for the sharp decline on the activity was
tight money because inflation was still above 10% and money stock was growing at only
5.1% in 1981, the real money supply was falling. With a policy mix of easy fiscal and tight
monetary policies, it was found out a rise in interest rate was expected. With investment
subsidies increased, investment increased with interest rates. This the fiscal expansion of
1984 and 1985 pushed the recovery of the economy forward.

The Recession of 1990 – 91

The policy mix in early 1980’s featured highly expansionary fiscal policy and tight money.
The tight money succeeded in reducing the inflation of late 1970’s and very early 1980’s, at
the expense of serious recession. Expansionary fiscal policies then drove a recovery during
which the real interest rates increased sharply. By middle of 1990 it was clear that the
economy was heading for the recession.

The price of oil jumped and for a time the Fed was faced with the quandary of deciding
whether to keep monetary policy tight while holding interest rates up, in order to fight
inflation, or pursue an expansionary policy in order to fight the recession. The fiscal policy
was immobilized because the budget deficit was already large and was expected to rise and
thus no one was enthusiastic about increasing it. From end of 1990, Fed began to cut interest
rates aggressively and the economy showed signs of recovery in second quarter of 1991 but
faltered in fourth quarter.
Thus, Fed cut the interest rate very sharply at the end of 1991. In retrospect, this was
sufficient to ward off a recession.

The Recession of 2008 onwards

The Credit Crisis began in August 2007, when interbank lending markets in the US, UK and
Europe began to seize up. These markets had rarely received much public attention, and it
was not immediately obvious why this should have happened. But loans on interbank
markets, from overnight to several months, were not just important in keeping the flow of
credit circulating amongst banks, and hence amongst almost all economic agents in a market
system, they were made without collateral being necessary, and were increasingly important
to the banking model developing across market economies. That model relied to an
increasing extent on wholesale markets for supplies of capital, rather than on the deposits of
individuals or companies. At the same time the degree of leveraging on capital was also
increasing. So with larger supplies of credit and greater leveraging higher profits were
possible. As were higher risks, as banks sought out increasing rates of return to satisfy their
shareholders and those of their employees whose wages and bonuses were linked to levels of
business or profits. But the increasing levels of risk seemed manageable by the device of
securitisation, which appeared to allow the securitising bank to simultaneously sell on the risk
and replenish its capital. When a rapidly deflating housing market bubble in the USA
exposed weaknesses in this banking model, and similar bubbles in Ireland, the UK, Australia
and Spain also began deflating, doubts about the location and value of securitised assets led
eventually to an evaporation of trust between first banks, and then other financial and non-
financial companies.

By the autumn of 2008 the lack of trust in the financial sector was sufficiently great to almost
completely seize up credit flows and threaten the stability of the world financial system. The
financial system was in effect broken, and by October 2008 a coordinated action by large
numbers of central banks and countries was needed to stabilise it. This involved giving
widespread promises of state protection to depositors, large injections of capital to banks,
vast liquidity supplies to gummed-up financial market and increasing guarantees for all sorts
of short term bond issues. Most recently the Crisis moved into the realm of sovereign default,
as countries such Hungary and Ukraine struggle to refinance foreign currency loans, bringing
in international agencies such as the IMF and the World Bank to provide assistance. At the
same time the Credit Crisis has spawned an international economic downturn, and in some
cases recession, the depth and severity of which cannot at the moment be estimated.

All of these responses have public finance consequences – tax revenues and expenditures –
and risk and uncertainty consequences that are still growing and evolving.

Theoretical Insight
Theoretical insight about the recession and how to tackle recession can be given by the help
of macroeconomic studies. But before that we should pay attention to what is meant by
recession?

“In economics, a recession is a general slowdown in economic activity over a sustained

period of time, or a business cycle contraction. During recessions, many macroeconomic
indicators vary in a similar way. Production as measured by Gross Domestic Product
(GDP), employment, investment spending, capacity utilization, household incomes and
business profits all fall during recessions.”

To come out of this slowdown different economies adopt different policies mainly under the
heads of Fiscal Policy and Monetary Policy.

Tight Monetary policy affects the economy, first, by affecting the interest rates and then by
affecting the aggregate demand. An increase in the money supply reduces the interest rate,
increases investment spending and aggregate demand and thus, increases equilibrium output.

Loose Fiscal policy is implemented by increasing government spending, cutting taxes etc. A
cut in taxes will increases the consumption of the public and thus increase in demand.

There are again two extreme cases in the operation of monetary policy and fiscal policy.

First is the Classical Case where the demand for real balances is independent of the interest
rate, monetary policy is highly effective and any kind of fiscal policy will be ineffective and
thus there will be crowding out of private spending by government.

Second is the case where there is Liquidity Trap, i.e., public is willing to hold any amount of
real balances at the going interest rates, thus, monetary policy is highly ineffective but fiscal
policy is effective.
In all cases, the main concern of tightening the monetary policy and easy fiscal policy is to
increases consumption and increases demand in the economy. Thus, consume more and save
less. But in developed countries like Japan saving is encouraged to come out of the
slowdown.

But just by implementing these policies will not help in getting the desired results. A key
component is there which plays an important role for the success of any policy. This key
component is “Multiplier”.

Multiplier Effect is explained as the changes in the real variables due to the changes in the
exogenous variables. If the multiplier is greater than 1 , then it indicates that any increases the
in government spending will result in greater change in the aggregate demand and any
decrease in the interest rates will result in much less money supply. In such economies where
multiplier is greater than 1, expansionary fiscal policies will be effective and can give very
good results and vice versa.

In the current scenario, many economies under economic slowdowns are implementing a
policy mix of monetary and fiscal measures. Reduction in interest rates, introducing stimulus
packages in different sectors, cutting tax rates and increasing government spending in buying
bonds etc are all measures taken up by different emerging as well as developed economy to
survive in this recession period.

These measures and how developing economies follow “consume more and save less”
strategy and developed economies follow “consume less and save more” strategy will be
explained further by the case studies of different countries and steps taken by them.

India
Impact on India of Slowdown

A slowdown in the US economy is bad news for India because:

• Indian companies have major outsourcing deals from the US

• India's exports to the US have also grown substantially over the years.
 • Indian companies with big tickets deals in the US are seeing their profit margins
shrinking.

Anatomy of the economic depression in India

 Share 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

 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 to cut cost.

• India's IT export growth is also slowing 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 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

• 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 this issue Mr. Manmohan Singh suggested –

“A coordinated fiscal stimulus by countries that are in a position to do so would help to

mitigate the severity and duration of the recession”

“It 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 (of the 1930’s), the risk may be worth taking.”
Corrective 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 to recession

• 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
A Ray Of Hope

Experts see a ray of hope in the fiscal stimulus I package of Rs 10,000 crore which is
expected to boost demand for the capital goods sector and the infrastructure industries which
primarily include power, cement, coal, crude oil and petroleum.

India’s growth is based essentially on investing its own savings, and so is relatively insulated
from global finance and fashions. India’s savings rate has shot up from 23.5% in 2001-02 to
37.4% today, a phenomenal achievement.

High savings constitute a structural change that is here to stay. This will suffice to finance an
investment rate of at least 36% of GDP. So, given that output in India rises at roughly a
quarter the rate of investment, a realistic GDP growth of 9% should be sustainable.

If the world economy recovers in the next six months, a 7% growth looks feasible. This will
mean little deceleration from the current year and hence, little additional pain. This scenario
depends on a resumption of global growth early in the next fiscal year.

Assocham President, S. Jindal hopes that money will flow into the system to support the
projects that have been put on hold.

The Prime Minster who holds the Finance portfolio also, is confident that the country will be
able to maintain the growth rate around 8 percent in the current fiscal. The most pessimistic
estimates put it at 7 percent.

It is important now is that the industry and other sectors of economy respond to government
initiatives in full measure and pass on the benefit of price cuts to the consumers. They need to
realize that in the current global crisis when international demand is shrinking, it is only the
domestic demand that can keep the business going.

Fortunately, India with its 1.1 billion population has a huge potential of keeping demand
afloat. All they need is the purchasing power which the Government is trying to do by
pumping in funds into the system.

A silver lining has been the consistently falling inflation rate which has now come down to
around 6 percent. With the fall in petrol and diesel prices, the general price line is bound to
fall further as petrol prices constitute an important ingredient of transport costs. We may thus
witness a more comfortable inflation rate much too soon.

Industry sector has welcomed the measures though it expects more to defuse the situation.
FICCI described the measures as “a good start in the right direction”.

While a number of banks have already announced lower lending and deposit rates with effect
from January 1, 2009, a further softening in interest rates seem to be in the offing.

FICCI secretary general Amit Mitra said: “The steps should hopefully give big boost to the
slowing economy,” adding that he expected “business confidence would be restored”.

The bond market quickly reacted to the rate cuts. The yield on the bond dropped to 5.07%,
from the previous close of 5.29%. Industry is hoping that its lending costs, too, will drop.

Interest rates are expected to come down further with a lag as banks will first align their
deposit rates.

The funding of the purchase of buses under JNNURM would help increase capacity
utilization. This is crucial at a time when plant shutdowns and temp layoffs are becoming
routine.

The business environment of the future will be intensely competitive. Countries will want
their own interests to be safeguarded. As tariffs tumble, non-tariff barriers will be adopted.
New consumer demands and expectations coupled with new techniques in the market will
add a new dimension. E-commerce will unleash new possibilities. This will demand a new
mindset to eliminate wastes, delays, and avoidable transaction costs. Effective entrepreneur-
friendly institutional support will need to be extended by the Government, business and
umbrella organisations.

Experts, who earlier predicted easing of trade credit by December 2008, are now hoping that
it would be achieved by June 2009.

The world economy continued to contract at a near-record pace in December 2008, but the
rate of contraction has slowed.

There was a marked improvement in the services sector, with the Global Services Purchasing
Managers Index (PMI) at 40 in December, well above the 36.1 level it plummeted to in
November 2008.
India does not have a PMI for the services sector yet, but looking at the global pattern, it’s
very likely that in India too the rate of contraction of services will be less than that of the
manufacturing sector. And since services account for 60% of India’s economy, any resilience
there will provide a big cushion for the downturn.
Hillary Clinton’s Verdict on the Outsourcing Industry

Shiladitya Lahiri, Research Analyst, EmPower Research May 15, 2008

New York, Thursday, May 15, 2008 : While Clinton has fought to end loopholes that give tax
breaks to companies offshoring jobs, she also has acknowledged that offshoring will be
difficult to stop.

Hillary Clinton has always been in the limelight when it has came to her opinion about the
“outsourcing industry”. Four years ago, she brought Tata Consultancy Services to Buffalo
City amid great fanfare and promises that its local operation might eventually employ up to
100 people. But the India-based company, one of the world’s largest outsourcing consultants,
currently employs only about 10 people locally. This led to a variety of opinions being
generated across communities.

The main lobbying organization for the Indian-American community, USINPAC, cited the
Tata deal as one of Clinton's top three achievements as a senator -- and evidence of a
turnabout, in its view, from her past criticism of outsourcing. Whereas in the year 2005, the
Information Technology Professionals Association of America (ITPAA), an advocacy group
based in Wilmington, Delaware representing professionals in the high-tech field handed out
its first “Weasel Award” of 2005 to Senator Hillary Rodham Clinton marking her ‘betrayal
towards the American people.’

On April 2, 2008, Hillary Clinton said that she wanted to ‘insource’ more jobs and stop
giving tax credits to companies that send jobs overseas. The New York senator and
Democratic presidential hopeful unveiled the $7 billion tax incentive and investment plan
during a panel discussion at the IBEW Conference Center and training facility on Pittsburgh's
South Side, which marked the last stop in her six-day "Solutions for America" tour of
Pennsylvania.

“If the United States continues to outsource jobs to India in increasingly large numbers,
people will begin to feel insecure and may very well seek more protection against what they
view as unfair competition.…………………America is not just a marketplace to get a
foothold in. It is a place to make lasting investments that will create jobs and economic
growth for everyone.” – Hillary Clinton.

Clinton proposed expanding tax benefits for research and development by increasing the
existing credit by 50%, and creating a 40% research and development credit for basic
research. She also proposed ending the practice of ‘deferral’, which allows companies to
defer paying taxes on income earned by foreign subsidiaries, and the creation of 15
‘innovation and research clusters’ across the country.

She also expressed her intentions of creating a manufacturing advanced research projects
agency, and a green manufacturing extension partnership. The panel members included
Pittsburgh Life Sciences Greenhouse President and CEO John Manzetti, who told Clinton
that creating more companies was the key to retaining talent in the area. He paraphrased a
well-known axiom of Clinton's when he told her, “It takes a community to raise a company.”

Offshoring critics, nevertheless, said concerns about the Tata deal and Clinton’s views on
offshoring have grown in recent months. While Clinton has fought to end legal loopholes that
give tax breaks to companies that offshore jobs, she also has acknowledged that offshoring
will be difficult to stop and has continued to urge Indian companies to invest in the United
States.

As the election fervor catches on, the outsourcing issue has once again been resurrected to a
hot campaign issue. Democrats like Clinton who have to aggressively court special interests
like labor unions - that vehemently oppose outsourcing - have to tread carefully and try to
balance their support for free trade and globalization

Sriharsha Venkata Yellamraju, Sr Research Analyst, EmPower Research May 13, 2008

Effect of US Recession on Outsourcing Industry

This article is part 1 of a series of four articles by Empower Research, a New York based
business research firm on the impact of current US recession and US political changeover on
Indian outsourcing industry.

The issue of offshoring and outsourcing has stirred a hornets nest when Barrack Obama
launched an attack on companies that outsource jobs to India and China. What is the stand of
the three prime contenders for the US top job on outsourcing? What is the effect of the US
recession on the Outsourcing industry?

This series will try to answer these questions, starting with the one on the impact of US
recession on outsourcing today, followed by "Hillary Clinton’s Verdict on the Outsourcing
Industry" and "Barack Obama’s verdict on Outsourcing Industry"

New York, Tuesday, May 13, 2008 :

Hundreds of thousands of small medium enterprises (SMEs) are waking up to benefits of

offshore outsourcing industry.

What is the effect of the US recession on the Outsourcing industry? Can the vendors expect
more business due to the situation in the US or is it the time to take appropriate measures to
counter the possible slump in the business growth?

According to Julio Ramirez, globalization and outsourcing practice leader at the Hackett
Group, ‘many companies are hitting the pause switch on their globalization efforts’. And with
the transformational projects on hold the outsourcing companies will see less of the request
for proposals (RFPs) till such time the recession scenario actually unfolds. There might also
be a ‘dip in deal size especially in the full service models’ per Soumit B, Senior Analyst at
Everest Research Institute, as buyers become frugal in determining scope of contract.
With the given scenario purchasers will look to vendors to offer them help in savings and
productivity. Rupee appreciations against the dollar and the general inflationary levels in
India aren’t helping much. Rupee in fact gained about 11% against the dollar between
January and December 2007, which resulted in higher costs for the clients and lower earnings
for the offshore service providers.

Hedging of course is an option available to the sellers to manage currency exchange rate risk
but it eventually would put more pressure on the bottom-lines as it adds to the costs. Again,
wages in India are escalating and the companies are planning to reduce the salary increments
‘to single digits in the next couple of years’ to control the costs. The difficulty with this
option is attrition and it needs to be seen how the outsourcing companies would now manage
the already high rates.

US recession, however, has some positive effects too on the industry. Hundreds of thousands
of small medium enterprises (SMEs) are waking up to benefits of offshore outsourcing
industry. Times of India states that SME deals from the US would be around $8 billion by
March 2009 and $11 billion by March 2010 from the current levels of about $7 billion. Also
the slowing US economy could push the outsourcing up to new levels to low-cost
destinations and per the global research firm Gartner India here has ‘a definite advantage over
other countries’.

So to better tap the opportunities venders need to move to low cost destinations – either
within the country or even outside of it. Trend is evident with many of the top firms opening
their offices in countries like Philippines, Singapore, Malaysia, Sri Lanka and a few east
European countries. Companies are also looking for new client outside the US – particularly
in the English speaking countries of the UK, Australia, New Zealand and Canada.

Offshoring over the long term looks promising. Business Line reports that ‘vendors are
expecting the same recession-related factors to fuel increased demand for outsourcing by the
end of the calendar year’

New York, Thursday, May 15, 2008 :

Obama considered anti-outsourcing as one of the key issues for his campaign.

When Barack Obama decided to run for the presidential election after his short tenure as the
Democratic Senator from Illinois, his candidature was welcomed across the country. He
featured in the national limelight after his outstanding speech at the Democratic National
Convention in 2004 to become the conspicuous leader for a new politics. He was however,
entangled with two potential problems. First, that he is African-American and secondly,
Democrats will not support him because they do not think an American of African descent
can win a general election.

Issues of globalization and outsourcing have never been chosen by American politicians to
show leadership. Doing so would mean challenging global financial firms, who apparently
are the biggest campaign financiers. On the contrary, Obama considered anti-outsourcing as
one of the key issues for his campaign.

Playing the anti-outsourcing card Obama believes that, while the United States cannot retreat
from globalization, it would have to take measures to ensure that jobs are not shipped out of
the country.

“We have to stop providing tax breaks for companies that are shipping jobs overseas and give
those tax breaks to companies that are investing here in the United States of America,” –
Barack Obama

Reacting to the displacement of workers in manufacturing jobs as a result of the NAFTA

(North American Free Trade Agreement) and generally to the anti-outsourcing crowd, Obama
said that he would ensure environmental, safety and labor standards in every pact that the US
signs.

In one of the papers circulated by Obama campaign had claimed that Clinton is in support of
outsourcing as she is gets dollars for her campaign from Indian-Americans and that she does
not care about lost American jobs. The ‘Off-the-record’ memo by Obama quoted that in
2005, while on a trip to India, Hillary Clinton told a meeting of industrialists that there is no
way to legislate against reality and that outsourcing will continue.

An internal memo by Obama campaign in June, 2007 revealed that Clinton’s ties to wealthy
Indian businesspeople had made her favor outsourcing. The memo mentioned the tie between
Clinton and Vinod Gupta, an Indian entrepreneur who founded InfoUSA, one of the largest
brokers of information on consumers in the US. Gupta, a major fund-raiser and supporter for
the Clintons, was detailed in the Obama memo because his company outsources to India and
he has vociferously supported the practice.

Obama believes that the global integration of the US economy is there to stay. But he would
fight for American workers who lost their jobs. Obama refutes tax relief to companies that
ship job overseas but said that education system must improve to check the outsourcing trend.
 OBJECTIVE OF THE PROJECT

1. To know the views of fresher about recession.

2. To analyse in detail about job opportunities available with freshers in this recession
period.
3. To know the worldwide impact of recession.
4. To know which sector of economy is most effected by recession.
5. To know about steps should be take by government for come out from this situation.
 RESEARCH METHODOLOGY

Research refers to the search for Knowledge, it be defines as scientific and systematic search for
information on the specific topic. It is carefully investigation or inquiry especially through search for
new facts of any branch of knowledge.

Research plays an important role in the project work. The result of the project is completely based
upon the research of the facts and figure collected through the survey.

That is why it is also called a movement unknown to known. Research is the original contribution to
the existing stock of knowledge.

In the words of “FRANCIES RUMMER” research is- it is a careful inquiry or examination to

discover new information or relationship and to extend or verify existing knowledge.

Research is the solution of the problem, whether created or already generated. When research is done,
some new out come, so that the problem (created or generated) to be solved.

RESEARCH DESIGN

“Arrangement of conditions for collection and analysis of data in a manner that aims to
combine relevance to the research purpose with economy in procedure.”

The research design is the conceptual structure with in which research is conducted; it constitutes the
blue print for the collection, measurement and analysis of data.

TYPES OF RESEARCH DESIGN

Exploratory Research Design- The main purpose of formulating a problem for more precise
investigation or of developing the work hypothesis from an operation part of view.

Descriptive Research Design- Which are concerned with describing the characteristics of a particular
individual, or of a group?

Diagnostic Research Design- Determine the frequency with which something occurs or its
association with something else.

Hypothesis-testing Research Design- Where the researcher tests the hypothesis of casual
relationship between variables.

In this project Descriptive and Exploratory research design is used.

 COLLECTION OF DATA

For the purpose of research study both primary data as well as secondary data has been collected.

Primary data

Secondary data

Primary Data:

Primary data is raw data. One which is collected by the investigator himself for the purpose of a
specific inquiry or study. Such data is original in character and is generated by surveys conducted by
individuals or research institutions.

Like observation method, interview method, questionnaire and schedules.

Secondary Data:

Secondary data has an advantage over primary data that former in less time and cost consuming
than the primary data

I have used newspaper, internet, magazines and journals for secondary data.

SAMPLING

Sampling is defined as the selection of some parts of the totality on the basis of which the judgment or
inference about the totality made. It is the process of obtaining information about the entire population
by examines only a part of it.

Sampling refers to the method of selecting a sample from a given universe with a view to draw
conclusions about that universe. A sample is a representative of the universe selected for study.

Convenience sampling is used in exploratory research where the researcher is interested in getting an
inexpensive approximation of the truth. As the name implies, the sample is selected because they are
convenient. This non-probability method is often used during preliminary research efforts to get a
gross estimate of the results, without incurring the cost or time required to select a random sample.

Collection of data:

For the purpose of research study both primary data as well as secondary data has been collected.
 Like observation method, questionnaire.
 Newspaper, internet, magazines and journals for secondary data.
 Sampling Unit:- Freshers
 Type of research:- Descriptive/Analytical
 Sampling Area:- Bahaduurgarh
 Sample Size:- 50
 Sample Media:- Questionnaire
 Sampling Technique:- Random
 Source of Data Collection Primary & Secondary
 EFFECT OF RECESSION ON DEFERENT COUNTRIES

GREAT BRITAIN

The first official confirmation that the UK is in recession came on Friday after figures from
the Office for National Statistics showed gross domestic product fell 1.5pc in the final quarter
of 2008. That followed a 0.6pc contraction in the third quarter and two quarters of contraction
means we're are technically in recession is here. The number was significantly worse than the
1.2pc expected by economists, and is the biggest three-month GDP fall since the second
quarter of 1980 when it shrank by 1.8pc. That means U.K. is already in a recession deeper
than that of the early 1990s, when the most the economy shrank in a single quarter was 1.2pc.

How long this recession stays, and whether it overtakes the 1980s in terms of depth, is less
certain. The news that they are a nation in recession will come as no surprise, but it will do
nothing to quash the uncertainty that is feeding economic decline.

Commenting on the figures, Stephen Gifford, Grant Thornton's chief economist, said: "The
sheer fall in GDP is staggering. Financial meltdown has probably been averted but the
economy has now entered a recession which is sure to be as bad as the early 80s."

There are mixed views on how severe the recession will be, and the goal-posts seem to be
shifting on a weekly basis as retailers go to the wall, company profits plunge, unemployment
rises, and the housing market stands stubbornly still.

Ultimately a crisis that began in the US banking sector and is characterised by a credit
squeeze has filtered through to the broader UK economy, which contracted 1% between
September and November, the National Institute of Economic and Social Research (NIESR)
has estimated.

This fall followed after a 0.8% drop in the three months to the end of October, said the think
tank.

Indicating that the rate of output decline is "accelerating", the NIESR now expects a fall of
more than 1% in the last three months of the year. Official data showed that the economy
shrank 0.5% from July to September. But it will not be until January that the Office for
National Statistics reports on the final quarter's GDP. If it reports a decline for the three
months to December, then the UK will be in officially in recession under the generally
accepted definition of two consecutive quarters of decline.

The NIESR says it has a good track record in forecasting GDP growth in advance of the
official figures.

Economic prospects

Despite his revised forecast, Mr Darling has taken a more optimistic view of the UK
economy than many independent forecasts.

He is expecting the UK economy to recover to a growth rate of 1.5% to 2% by 2010, and to

return to its normal growth rate of 2.75% in subsequent years. "Because of the wide-ranging
measures I am announcing today, and the many strengths of the British economy, I am
confident that the slowdown will be shallower and shorter than would have been the case,"
Mr Darling said. But other forecasts suggest that the economic recovery will not begin until
well into 2010, and that the economy could shrink by as much as 2% next year. If the world
economic recovery is indeed delayed, then even the grim budget forecasts made by the
chancellor could be too optimistic.
Some economists argue that if Mr Darling's stimulus is not enough to turn around the
economy, he will need a further stimulus package in the Budget.

"The economy still faces powerful contractionary forces in the shape of widespread recession
abroad, and at home falling house prices and stock markets, blunted monetary policy as banks
constrain lending and rock-bottom business and consumer confidence," says Andrew Smith,
chief economist at KPMG.

"If this package fails to kick-start the economy, further expansionary measures can be
expected in next year's budget proper."

Fiscal squeeze

The government is also planning a sharp cut in the rate of growth in public spending over the
next few years. Public spending is now expected to grow by just 1.2% per year, less than the
growth rate of the economy as a whole, and a sharp decrease from the 1.8% previously
planned. This compares to an annual growth in public spending of around 3% under the
previous Labour government. In addition, the government has pencilled in £5bn in efficiency
savings by 2011. This spending slowdown is part of the plan to bring the public finances back
into balance by 2015. But it will not be enough on its own.

Tax rises

The government is also going to implement a very large shift in the tax burden in years to
come. Compared to tax giveaways of £19bn this year, the government is expecting to raise
taxes by £20bn in four years' time. The largest slice of tax increases will come from the 0.5%
increase in National Insurance contributions, which will raise £4.7bn. Taxes on the rich,
including the 45% higher rate and restrictions on personal allowances, will add £2bn in tax
revenues. And, if growth is slower than predicted, there may have to be other tax increases in
the pipeline.
United States of America

The United States housing market correction (a possible consequence of United States
housing bubbles) and subprime mortgage crisis has significantly contributed to a recession.
Apart from that US faced major crisis because of -

• 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 the GDP growth rate fell to 2%,
recession set in.

The 2008/2009 recession is seeing private consumption fall for the first time in nearly 20
years. This indicates the depth and severity of the current recession. With consumer
confidence so low, recovery will take a long time. Consumers in the U.S. have been hard hit
by the current recession, with the value of their houses dropping and their pension savings
decimated on the stock market. Not only have consumers watched their wealth being eroded
– they are now fearing for their jobs as unemployment rises.

U.S. employers shed 63,000 jobs in February 2008, the most in five years. Former Federal
Reserve chairman Alan Greenspan said on April 6, 2008 that "There is more than a 50
percent chance the United States could go into recession." On October 1, the Bureau of
Economic Analysis reported that an additional 156,000 jobs had been lost in September. On
April 29, 2008, nine US states were declared by Moody's to be in a recession. In November
2008 Employers eliminated 533,000 jobs, the largest single month loss in 34 years. For 2008,
an estimated 2.6 million U.S. jobs were eliminated.

The unemployment rate of US grew to 8.5 percent in March 2009, and there have been 5.1
million job losses till March 2009 since the recession began in December 2007. That is about
five million more people unemployed compared to just a year ago. This has become largest
annual jump in the number of unemployed persons since the 1940’s.

Although the US Economy grew in the first quarter by 1%, by June 2008 some analysts
stated that due to a protracted credit crisis and "rampant inflation in commodities such as oil,
food and steel", the country was nonetheless in a recession. The third quarter of 2008 brought
on a GDP retraction of 0.5% the biggest decline since 2001. The 6.4% decline in spending
during Q3 on non-durable goods, like clothing and food, was the largest since 1950.

A Nov 17, 2008 report from the Federal Reserve Bank of Philadelphia based on the survey of
51 forecasters, suggested that the recession started in April 2008 and will last 14 months.
They project real GDP declining at an annual rate of 2.9% in the fourth quarter and 1.1% in
the first quarter of 2009. These forecasts represent significant downward revisions from the
forecasts of three months ago.

A December 1, 2008, report from the National Bureau of Economic Research stated that the
U.S. has been in a recession since December 2007 (when economic activity peaked), based
on a number of measures including job losses, declines in personal income, and declines in
real GDP.

Recent economy slowdown as we all know started in U.S. last year in October & initially it
was concentrated on U.S. economy only but as expected & as experts forecasted that it is
going to affect whole world & it did. So now let`s examine some facts & figure related.

The US Economy has seen an unprecedented growth over the last decade, which accelerated
to over 4% per year over the last four years. The year 2000 saw this growth at an all-time
high of 5.1% - a figure that is staggering in enormity when one considers that a 1% growth in
the US economy is comparable to an 8% growth in the Chinese Economy. Further, 33% of
the global growth is linked either directly or indirectly to the US economy. With this in mind,
it was a common belief that the American honeymoon would never end. It was the Industrial
Revolution all over again - with increasing productivity levels, happy days were here to stay.
This growth however, had - and continues to have - a flip side - serious imbalances are
present in the US economy, indicated by the following factors. A huge current account deficit
at US $500billion - over 5% of the GDP. So far, the current account imbalance, which has
been quite high over the last 4-5 years, has mainly been sustained by capital inflows from
Euroland to the US. European investors had great confidence in the ability of American
companies to earn greater profits in the future by way of increases in productivity allegedly
taking place in the US Economy. How much of this perceived productivity increase is true of
all or most of corporate America and not just IT firms is, however, debatable; extremely high
Private Sector borrowing; gross over-valuation of the asset market and· the fact that the
American consumer, leveraging on notional wealth, is borrowing more and more, to spend,
resulting in a national dis-saving. Consumption expenditure far outstrips disposable income.
It has been argued that domestic consumption was buoyant on the basis of strong equity
markets and although some of these have also been corrected more recently, the risks are a
currency collapse or something going wrong in the equity market, thus rendering the whole
system vulnerable.

Of disturbing significance is the fact that each of the above mentioned factors of imbalance
has preceded other recessions of the past. In fact, the situation today is a close replication of
1998. Then, the Federal Reserve reduced the interest rates by 75 basis points, thereby
reviving the markets. With dot coms and software successes waiting to happen, a huge boom
took place and consumption spending came back with a bang. 1998 was a classic example of
the 'markets driving the economy' syndrome, which continues to be the norm.

What remains to be seen is whether the gamble will pay off this time around. The soft landing
will be brilliant for global markets and for global economies. On the other hand, however, if
Alan Greenspan, Chairman, Federal Reserve, is not able to revive the market with interest
rate cuts, the current account deficit will further increase, leading to investors shying off
potentially "risky" US assets. All of this can only result in much larger dis-equilibrium - and
subsequently, a much larger recession, therefore, than what we are seeing today. It is,
however, too early to predict the final outcome. The current probability of soft vs a hard
landing is 2:1. One can also take heart in the fact that a global recession, which would be the
result of a hard landing of the US Economy, has not happened in the last 50 years - not even
during the 1973 oil crisis. The most likely possibility, therefore, is a growth recession or
reduction. The after effects will be manifold with over 33% of global growth linked either
directly or indirectly to the US economy, there is a disproportionate global dependence on the
US Economy. Turmoil in the US, in turn, therefore, causes a substantial ripple effect on a
number of global economies.
So now after having a closer look on U.S. economy we examine we examine its effects on
other parts of globe. ASIA Japan would be the worst hit, so to say. Before the Euro,
everything moved in linear correlation to the US Dollar. If the US Dollar strengthened, the
deutsche Mark weakened, as did the yen. This time, however, a fundamental change was
witnessed - the Euro strengthened and the Yen weakened. The Yen, which has come down by
12% in the last 4 months, seems to be the only currency taking a beating despite the
slowdown in the US economy. The Japanese have tried everything in the book to revive and
stimulate the economy to its previous glory but to no avail. The Nikkei, which used to be
40,000 at one time, is about 13,000-15,000 now. Further, retail sales in Japan have been
coming down for a straight 44 months. Japanese exporters talking down their currency has
not helped. The biggest irony is that corporate Japan is doing well but this has not reflected
anywhere in stock market prices, which are once again down to levels where a number of
banks are facing capital inadequacy problems. If exports to the US decline as a result of the
slowdown and Japan continues with a weak Yen policy, it will result in some more and
graver imbalances. All banks have huge equity portfolios and anytime the market goes up a
little, they start dumping these and the market comes down. The worrisome factor is that the
banks are now all unsure about investing money in Japan.

On the other hand, Japanese corporates have huge holdings in the west, but prefer to leave
most of their earnings in US Dollars and the Euro. Toyota, for example, has just decided to
do so with US$ 26 billion of their earnings. The logic really is that since most Japanese
companies remit their profits to Japan in March, they would end up remitting more Yen in the
current scenario. If more and more companies begin to do this, the Yen would weaken even
more.Other Asian economies, like Malaysia, Taiwan (where chip manufacturing companies
are already running lower at 85% capacity), Hong Kong and Singapore would feel the ripple
effect far more than others. In other parts of the world, Canada, Mexico and Brazil are most
certainly way more vulnerable than any other countries.

EUROLAND Sunnier days are ahead as far as the Euro is concerned as all factors
determining the Euro - interest differentials, oil prices and relative productivities are
favourable to the currency. A 10-year Euro bond today yields about 4.65% as compared to
5.15% by a 10-year US Treasury bond. This spread is going to narrow down a bit further with
further expected cuts.
The falling oil prices, lower-than-expected productivity levels of American companies and
the fact that oil producing and oil revenue earning countries have invested in US dollar
denominated assets traditionally and will continue to do so, are all factors that are Euro
positive. According to the experts a base will be formed around the Euro at 92-93, where it
will see a brief honeymoon. It is, however, too early to predict where it will go thereafter.
What remains clear, however, is that if the US economy does not revive, more money will
flow into Euroland or else, the Euro will continue to gravitate around these levels.

So these are the after effects of U.S. slowdown on Asia & Europe the other two most
important parts of the world now we can shift our attention to our own country the India.
INDIA It is far too presumptuous to think that India is going to be hugely and adversely
affected by the US economy slowdown. At 0.6%, India's share of the global trade is too tiny
for this. At the same time, however, one must always bear in mind the far-reaching impact of
globalisation, which has, in turn, led to the interdependence of economies, particularly where
the US is concerned. 25% of India's IT exports, for example, are to the US. The value of the
Rupee, however, as far as interest rates are concerned, would depend on fund flow and
valuation dynamics and the Reserve Bank of India's policy towards this. In the end count, the
Rupee still moves the way the Central Bank wants it to - we are still a closed economy to that
extent. And the RBI tracks currencies other than the US Dollar - the Euro, Yen, RMB, as also
a few other competitor currencies, whilst deciding the fate of the Rupee.

The wild cards, in this entire play of currency management is the weakness of the Yen and
the RMB. Any significant weakening in either of these currencies could very well have a
domino effect across the entire region, including India and the Indian currency, the Rupee.
The RMB is closely linked to the US dollar - the latter's fortunes really determine what the
RMB will do. The dollar weakening against the Euro and other currencies is a huge breather
as far as Chinese exports are concerned. If, however, the dollar starts appreciating, then the
Chinese will want to kickstart their economy through a possible RMB devaluation. It is
critical to remember, therefore, that despite the over Rs 3,000 crore of investments that came
into the Indian market in the first 20 days of January, 2001, (partly, some feel, because of a
certain perceived under-valuation of the Indian markets and the not so high 'risk', and partly
because interest rates have been cut in the US), there is always a possibility of something
going wrong externally that could affect the Rupee. In the end count: A decrease in exports as
a result of the US Economy slowdown will be certainly negative from the Indian standpoint
but the decrease in oil prices (from a peak of $35 a barrel to $20-$22) will be positive for the
Indian Rupee and the funds flow, given the US interest rate cuts, would be positive.

However, the FDI track record will continue to be shoddy, so the effect would be neutral. The
amazing growth of frontline IT companies at 55-60% is a thing of the past. The global
slowdown will definitely affect these companies. What inevitably needs to change is to shift
our exports focus from being US-centric to newer markets. The Reserve Bank, however, is
far more concerned with the slowdown in growth rather than inflation, which will be counter-
balanced by the lower oil import bill. Its focus will, therefore, be on re-igniting the 'feel-good'
factor in order to stimulate consumer spending patterns as a function of their aggregate net
worth rather than disposable income. Measures to this effect must be set in motion at the
earliest, as 2001 is the only year when any fundamental policy changes can be made. 2002
will be too close to the general elections.

So now we examine why U.S. slowdown is affecting us with reasons: Firstly the United
States is India's largest trade partner, source of foreign direct investment and external job
opportunities for the Indian middle class. Any slowing of the US economy is likely to hurt
India more today than at any time in the past. The fact is that the US is not only India's largest
trade partner, but that India has the highest trade surplus with the US and any slowdown in
Indian exports to the US is likely to have a larger impact on the trade deficit than a slowdown
in trade with European Union or developing Asia. India's trade with the EU and non-Opec
developing Asia, our other two major trade partners, is more or less balanced with exports to
these markets equal to imports from them. Our huge trade deficit with Opec countries is
largely balanced by the trade surplus we enjoy with the United States. Recently published
data shows that India's trade surplus with the US has actually increased since India's exports
to the US have continued to grow, while its imports from the US have declined. Indian
exports to the US have been mainly in the area of consumer durables and these have grown,
with the recent growth of the US economy. Thus, while in the first quarter of 2000-01, Indian
exports to the US went up by 26 per cent, imports from it were down by 18 per cent. This
trade data does not include software exports. The software segment is another main area of
concern. The US has emerged as the biggest market for Indian software exports. A slowdown
of the US economy will hurt the "new economy" in India since it is still largely export-
dependent and has not yet found a domestic market large enough to offset any loss in the
external market. But analysts and software CEOs argue that in a slowing economy, jobs are
cut and companies invest in automation, so that the demand for software services and for IT
products is likely to increase as the economy slows down.

Also, many US firms may offload work to lower-cost countries like India, especially in the
area of data-processing and office management work, and that this is likely to increase the
demand for new economy services in India rather than hurt them. On the negative side is the
concern that firms tend to put on hold expansion plans and investment in new projects when
there is a fear of a generalised slow down. This is likely to hurt demand for Indian IT services
and products. The final outcome may be a combination of both factors. But one must realise
that most of the companies who service the lower rung areas of maintenance etc., will not
really stand to loose. They may face a squeeze on their margins but the business will
continue.

Another area which will be impacted, will be the capital markets. Today the world markets
dance to NASDAQ’s tune. Dr Huang, who has spend 20 years in US and Taiwan, China, to
develop and implement a method to track accurately daily financial markets, said at an
investment forum early last year that NASDAQ was overheated, would face a correction upto
2800-3000 and the Dow, he stated, would be back to 9600. and global markets would follow
US for 20 % correction. His logic was that there is never a bull market before economic
softlanding. The bulls must take 20 % or more correction and consolidation reflecting
economic slowdown impact on consumer demand and corporate earning decline. Bull
markets, according to him, exist under expanding monetary policy. Expectations of higher
profits resulted in an unbelievable rally in the equity markets over the last five years.
NASDAQ, the technology stock heavy index, rallied from the start of 1995 and increased by
a whooping 5.8 times till March last year. Capital market rally resulted in the `wealth effect',
which further fueled the economy. Americans saw their investments in equity markets
growing dramatically in value.

However with this wealth effect wearing off and the risk consciousness rising, we will see a
lower deployment of funds to the world equity markets, which are also in a slump at the
moment. For the Indian markets, the impact is two fold - firstly, lower funds coming into the
market through the FII route and secondly, companies who had planned NASDAQ listings
etc. have had to put their plans on hold and this will delay their funds inflow as well as
growth plans. So, we in India, will definitely need to be prepared for some fall out on the
slowdown in the US economy and fine tune our corporate and export strategies as the picture
develops. So here comes the real picture lets now move our focus to reports published by
IMF about this situation last year when the International Monetary Fund issued its half-yearly
report, the world, in the words of one its leading officials, appeared to be a much “safer
place.” Growth was continuing in the United States, the European economy was expanding,
East Asia was recovering from the crisis of 1997-98 and there were even signs that a
Japanese “recovery” might finally get under way.

The picture presented in the latest World Economic Outlook released is very different. Apart
from cutting the world growth forecast by 1 percentage point, the main feature of the report is
the uncertainty over the future course of the global economy and the warnings that,
notwithstanding the hopes that the situation could quickly turn around, it could also worsen
quite rapidly. In his press conference releasing the report, IMF director of research Michael
Mussa pointed out that last September in Prague world growth for 2001 was predicted to be
4.2 percent. This has been revised down to 3.2 percent. It is clear, he said, that “global growth
is slowing more than was anticipated, or is desirable.” “For the United States, which has been
the mainstay of global expansion in the past decade, growth this year is forecast to be only
1.5 percent, down from almost 5 percent last year and from an earlier forecast of over 3
percent for this year.” The projection for the year 2002 has been reduced to 2.5 percent, at
least one percentage point below the estimated potential growth rate for the US economy. In
the euro-zone, the IMF estimates the growth rate will be 2.4 percent, a full percentage below
what it forecast last September. Mussa said the situation in Japan was “even more worrying”
with growth for this year forecast to be barely over 0.5 percent and growth for next year
expected to reach only 1.5 percent. Asia will be hit by the slowdown in North America and
Japan and by the global downturn in telecommunications and high technology with estimates
for growth coming in at between 1 and 3 percentage points less than six months ago. Mussa,
however, did not confine his remarks to the details of the report but delivered a stinging
rebuke to the European Central Bank and its refusal to cut interest rates, following rate cuts in
the US and Japan. After noting that the euro area was not contributing sufficiently to world
economic demand, Mussa continued: “In a period when general economic slowdown is the
main problem and when inflation is not likely to be a continuing threat, the euro area, the
second largest economic area in the world, needs to become part of the solution rather than
part of the problem of slowing down world growth.”

Mussa took the opportunity to deliver another broadside when taking questions from
journalists on the briefing. Asked to comment on whether calls on the ECB to cut interest
rates by the managing director of the IMF and the US treasury secretary could be regarded as
“interference” Mussa replied: “Here in the IMF we don't call that interference. We call it
surveillance. And it is mandated by the Articles of Agreement.” Global recession In
delivering its pronouncements, and particularly in setting out policy prescriptions for
countries that are considered not to have measured up, the IMF strives to create the
impression that it is fully in command of the situation, with a deep understanding of the
processes taking place in the global economy. But it seems the impression is starting to wear
a little thin—even among financial journalists who can usually be relied upon to echo its
analysis without asking too many questions. As one journalist pointedly commented: “Mr
Mussa, it seems that yourself and Wall Street and every economist has been caught by
surprise by this slowdown. In the last WEO you said the prospects were the best in a decade.
Now you say we'll avoid recession. Given the situation is so fluid, how can you be so certain
that we won't actually dip into a US recession and possibly a global recession?” Mussa
replied that there was “no certainty in this business” and offered the reassurance that policy in
most countries, which had policy flexibility, had been adjusted “promptly and reasonably
aggressively to the threat that things might be even somewhat worse than we have allowed
for in the baseline.” The WEO report itself claims there is a “reasonable prospect that the
slowdown will be short-lived” but warns that “the outlook remains subject to considerable
uncertainty and a deeper and more prolonged downturn is clearly possible.”

So far, it notes, the effects of the global slowdown have been most visible in countries which
have close trade ties with the US, including Canada, Mexico, and East Asia. The outlook for
the rest of the year “will depend on how deep and prolonged the slowdown in the United
States proves to be”—an issue which “remains subject to considerable uncertainty.” The
WEO says its baseline scenario is that the US economy will pick up in the second half of the
year, growth will remain strong in Europe, while recovery in the Japanese economy will
resume in 2002. But it adds that while this scenario is “plausible” it is far from “assured” and
the “risks of a less favourable outcome are clearly significant.” One of those risks, it states, is
that the “virtuous ‘new economy' circle of rising productivity, rising stock prices, increased
access to funding, and rising technology investment that contributed to the strong growth in
the 1990s could go into reverse.” Even this is a somewhat optimistic assessment, given that
most observers of the US economy have concluded that, whatever the immediate outcome of
the present downturn, overcapacity in all sections of industry—and above all in high-tech
investment—means that there is no prospect of the boom of the latter 1990s returning. The
report notes that if the slowdown does prove to be deeper and more prolonged than
anticipated “this would pose several interlinked risks for the global outlook that would
significantly increase the chance of a more synchronised and self-reinforcing downturn
developing.”

Among those risks is the possibility that what the report calls “apparent misalignments
among the major currencies” could “unwind in a disorderly fashion.” It points out that current
account deficits of the size presently experienced by the US—more than $430 billion,
equivalent to around 4.5 percent of gross domestic product—have not been sustained for long
and that “adjustment is generally accompanied by a significant depreciation [of the
currency].” If there were increased economic growth in Europe and Japan, then it would be
possible to reduce the US imbalances in a “relatively manageable and nondisruptive fashion.”
“However, in an environment where US growth slows sharply, the portfolio and investment
flows that have been directly financing the US current account deficit could adjust more
abruptly.” In other words, there could be a rapid movement of capital out of the US and a
sharp fall in the value of the dollar. “This would heighten the risk of a more rapid and
disorderly adjustment, possibly accompanied by financial market turbulence in both mature
and emerging markets. Large swings in exchange rates could also limit the room for policy
manoeuvre.” That is to say, according to the IMF's latest forecasts, there could arise a
situation in which the US dollar starts to fall and financial markets are hit by a crisis, under
conditions of a deepening slump. The fact that such a possibility is even being canvassed is a
measure of how far and how fast the world economic situation has moved in the past six
months. So here IMF also clearly specifies the picture of global slowdown. Lets move to the
perception of IMF about Indian economy.

The US consumer price index inflation is expected to fall to a rate of 2.4 per cent by end-
2001. Both producer and consumer prices continue to decline in Japan, where consumer
prices have fallen at a rate of 0.6 per cent (annual rate) and a similar decline is expected for
the year as a whole. The decline in asset prices, in particular, the real estate prices, has
generated new gaps in the adequacy of collateral for bank debts. The decline in growth of the
global economy has been caused by a combination of global and country-specific factors.
One universal cause has been the persistent rise in the energy prices during 1999-2000.
Another key factor to the reduction in growth has been the sharp and sudden downturn in hi-
tech investment in the second half of 2000. This weakened growth, notably in the US and
Europe, while brutally reducing the export performance of many Asian countries. This
pervasive setback has contributed to the weakness of manufacturing sector in virtually every
industrial country and driven many Asian economies, including Singapore, into recession.
Particular mention must be made of the rise and fall of demand for hi-tech equipment. In the
US, the output of hi-tech equipment accelerated at an annual growth rate to 70 per cent in
early 2000, before collapsing. The crisis worsened because not only was demand falling but
the unit price equipment in the hi- tech sector also collapsed. US investment spending was
sharply reduced, particularly on hi-tech equipment. The unexpected decline in the demand for
hi-tech investment goods undermined stock prices, reversing the earlier surge in the value of
new economy stocks. One other factor responsible for straining the earlier growth and
subsequent slowdown in the US has been the tightening of monetary policy. While the
tightened monetary policy did help control inflation, it also contributed to subsequent
economic slowdown.

Both US and Japanese policy-makers have made it clear that they are prepared to accept a
weak yen if that is the result of market reactions. The devaluation of the yen will not be
without impact on other currencies. It is quite possible that China may react with the
devaluation of yuan, which may well force the various Asia-specific countries to follow suit.
This will have serious repercussions on the world economy. Incidentally, the fact that oil
prices will remain high indicates further fiscal tightening for the Government. The oil pool
deficit will grow higher. Unpleasant decisions, which will have serious political
repercussions, cannot be delayed. The sooner they are taken, however, the better it will be for
fiscal health. The Finance Minister and the Prime Minister have yet another difficult
challenge to meet. The decline in the world's major economies has its repercussions,
unpleasant ones, on India's economy, in particular on its export prospects. The Government
has to take note of this trend and be ready to handle the adverse consequences of a continuing
global economic slowdown. It cannot be `business as usual'.
India

Impact on India of Slowdown

A slowdown in the US economy is bad news for India because:

• Indian companies have major outsourcing deals from the US

• India's exports to the US have also grown substantially over the years.

• Indian companies with big tickets deals in the US are seeing their profit margins
shrinking.

Anatomy of the economic depression in India

 Share 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

 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 to cut cost.

• India's IT export growth is also slowing 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 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

• 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 this issue Mr. Manmohan Singh suggested –

“A coordinated fiscal stimulus by countries that are in a position to do so would help to

mitigate the severity and duration of the recession”

“It 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 (of the 1930’s), the risk may be worth taking.”

Corrective 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 to recession

• 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
A Ray Of Hope

Experts see a ray of hope in the fiscal stimulus I package of Rs 10,000 crore which is
expected to boost demand for the capital goods sector and the infrastructure industries which
primarily include power, cement, coal, crude oil and petroleum.

India’s growth is based essentially on investing its own savings, and so is relatively insulated
from global finance and fashions. India’s savings rate has shot up from 23.5% in 2001-02 to
37.4% today, a phenomenal achievement.

High savings constitute a structural change that is here to stay. This will suffice to finance an
investment rate of at least 36% of GDP. So, given that output in India rises at roughly a
quarter the rate of investment, a realistic GDP growth of 9% should be sustainable.

If the world economy recovers in the next six months, a 7% growth looks feasible. This will
mean little deceleration from the current year and hence, little additional pain. This scenario
depends on a resumption of global growth early in the next fiscal year.

Assocham President, S. Jindal hopes that money will flow into the system to support the
projects that have been put on hold.

The Prime Minster who holds the Finance portfolio also, is confident that the country will be
able to maintain the growth rate around 8 percent in the current fiscal. The most pessimistic
estimates put it at 7 percent.

It is important now is that the industry and other sectors of economy respond to government
initiatives in full measure and pass on the benefit of price cuts to the consumers. They need to
realize that in the current global crisis when international demand is shrinking, it is only the
domestic demand that can keep the business going.

Fortunately, India with its 1.1 billion population has a huge potential of keeping demand
afloat. All they need is the purchasing power which the Government is trying to do by
pumping in funds into the system.

A silver lining has been the consistently falling inflation rate which has now come down to
around 6 percent. With the fall in petrol and diesel prices, the general price line is bound to
fall further as petrol prices constitute an important ingredient of transport costs. We may thus
witness a more comfortable inflation rate much too soon.
Industry sector has welcomed the measures though it expects more to defuse the situation.
FICCI described the measures as “a good start in the right direction”.

While a number of banks have already announced lower lending and deposit rates with effect
from January 1, 2009, a further softening in interest rates seem to be in the offing.

FICCI secretary general Amit Mitra said: “The steps should hopefully give big boost to the
slowing economy,” adding that he expected “business confidence would be restored”.

The bond market quickly reacted to the rate cuts. The yield on the bond dropped to 5.07%,
from the previous close of 5.29%. Industry is hoping that its lending costs, too, will drop.

Interest rates are expected to come down further with a lag as banks will first align their
deposit rates.

The funding of the purchase of buses under JNNURM would help increase capacity
utilization. This is crucial at a time when plant shutdowns and temp layoffs are becoming
routine.

The business environment of the future will be intensely competitive. Countries will want
their own interests to be safeguarded. As tariffs tumble, non-tariff barriers will be adopted.
New consumer demands and expectations coupled with new techniques in the market will
add a new dimension. E-commerce will unleash new possibilities. This will demand a new
mindset to eliminate wastes, delays, and avoidable transaction costs. Effective entrepreneur-
friendly institutional support will need to be extended by the Government, business and
umbrella organisations.

Experts, who earlier predicted easing of trade credit by December 2008, are now hoping that
it would be achieved by June 2009.

The world economy continued to contract at a near-record pace in December 2008, but the
rate of contraction has slowed.

There was a marked improvement in the services sector, with the Global Services Purchasing
Managers Index (PMI) at 40 in December, well above the 36.1 level it plummeted to in
November 2008.

India does not have a PMI for the services sector yet, but looking at the global pattern, it’s
very likely that in India too the rate of contraction of services will be less than that of the
manufacturing sector. And since services account for 60% of India’s economy, any resilience
there will provide a big cushion for the downturn.

Impact Of Recession On It Industry

Export-oriented small and mid-tier IT companies were able to weather the storm of rapid
appreciation in the rupee against the   in 2007 and early 2008, but now they are faced with the
stark reality of dwindling orders as the global financial crisis continues to cause a meltdown
across countries and industries, the IT & ITeS sector in India is beginning to feel the heat.
Amid fears of a global recession, companies, especially banks, worst-hit by the credit crisis
have already started to cut or delay spending on information technology services such as
consulting and software development but in the long term the impact will be minimal as the
industry’s fundamentals are strong and the value proposition continues to hold good
meanwhile it may be the time to prune down the and ensure cost-efficiency in organization
operations.
First have a look at sectors will be affected and how much. The sectors most severely
affected are Banks, Financial Services,   Real Estate, Infrastructure and Information
Technology,   Automobiles. Those which will feel a moderate impact of the global crises   are
Power, Retail, Hospitality and Tourism. The sectors least affected (directly) by the slowdown
are Pharmaceuticals, Oil & Gas, FMCG, Media & Entertainment
 Tata Consultancy Services is likely to be worse off than its peers because of its significant
exposure to Merrill Lynch. Merrill is also a significant client for Satyam Computer Services
and is evident from the July-September 2008 results which recorded a net profit of Rs 1,271
crore (Rs 1271 crore) up only 1.5 per cent as compared to corresponding period a year ago.
Infosys also accounts for almost 35.7% share from BFSI and 62% share from America while
Wipro accounts for 25% and 63% respectively and will be severely hit.
HCL Technologies could possibly be the least hit because of its lower exposure to financial
services clients compared to its peers.

Indian IT Industry: Coping with the US recession

The US downturn is slowly but surely redefining the Indian IT paradigm and if the Indian IT
companies are not watchful, they may lose the outsourcing advantage soon

The signs are for all to see. US employment fell for the first time since 2003, manufacturing
declined 5.3 percent, first time house buying - a good proxy for economic health - plunged
8.1 percent in December. Technically, it might not qualify as a recession, but according to
Warren Buffet, "by common sense definition", the U.S. economy already is in a recession.

A December report on the Indian tech sector by Morgan Stanley says the uncertainty in the
United States may delay tech spending in the first half of 2008. Margins are already under
tight pressure due to the weakening dollar. With Indian IT salaries rising 10-15 percent a
year, the overall operating margins have been reduced to six percent. The major crisis in the
US financial markets has had a ripple effect on all sectors and it might be a while before
things start looking up. As Laksmi Narayanan, Nasscom chairman and VC of Cognizant said,
"The current situation is not temporary.

It is the new baseline. The industry will have to learn to operate under the new parameters."
Anecdotal evidence suggests that fewer development projects from existing clients are
coming through. The sales cycles have increased and winning new customers has become
increasingly difficult.

If there was a major watershed in the Indian IT Industry post Y2K, this is it. After the
dizzying growth of the last 10 years, it is time to pause, reflect and realign strategies. If the
industry has to survive, then it needs to adapt to the changing market scenarios quickly. Talk
of a software upgrade.

Diversify globally
For far too long, Indian IT industry has focused on the US. Yes, US accounts for about 60
percent of the total IT spending. However, IT spending of American companies is slipping
with the slump. It's also been a long time since US firms embraced the outsourcing model, so
further growth seems very limited. With that in mind, the Indian IT firms need to focus their
attention on the other markets, especially Europe. Using UK as the base, software firms can
branch out onto mainland Europe. There will be a certain amount of language and cultural
resistance in countries like France, Germany, and Nsetherlands, that Indian firms will need to
grapple with. Eastern Europe has a large number of skilled software programmers.

Many global firms want to continue offshoring, however they are looking at non-India based
partners as a way of addressing the issues of talent shortage, salary hikes, and high turnover
which are becoming more acute in the Indian IT sector. Such firms are even willing to back
development centers run by Indian giants elsewhere, purely from the standpoint of flexibility,
business continuity, and seamlessness in global operations. Hence, Indian IT companies
should establish a strong presence globally through delivery centers in emerging regions, so
as to maintain its existing business and gain a bigger portion of the IT revenues pie.
Local foray
With the rupee gradually strengthening against the dollar, it makes imminent sense to enter
the local markets decisively. Indian IT market is growing at a compounded annual rate of 21
percent. Indian companies have been traditionally slow in embracing IT, but are now
adopting technology at a breakneck speed. A few large multi-million dollar contracts like the
Bharti-IBM, Dabur-Accenture and SBI-TCS deals should make the rest of industry sit up and
recognize the potential of the Indian market.

South East Asia is another region where IT big-wigs can focus their energies. China, Korea,
Japan, Australia are big markets, and Indian firms should make a firm thrust in capturing
them. The region can not only be tapped for local markets, but also be used as satellite
facilities to support their Indian counterparts.

Tighten recruitment and retention processes

Since the last few years, the composition of IT resource pool has undergone a substantial
shift. Earlier, many reputed companies only recruited engineers through campus placements.
However, the demand for Indian IT services kept getting bigger. Post dot-com bust and 9/11
tragedy, business conditions in the US became tougher, and companies wanted to focus on
key operational and strategic functions and outsource technical application development and
support to the experts. India as an IT destination offered notable cost advantage, better
flexibility, 24/7 support and improved accountability.

Figures suggest that only 25 percent of the total graduates in India have employable
'production-worthy' skills. Fewer contracts in a sluggish economic scenario would
automatically drive down the break-neck speed of recruitment. However, instead of a
complete stop to all recruitment, the IT industry should use this period for a meaningful
introspection and a substantial realignment of its hiring and retention processes.
Address the skills shortage

Concurrently, this quiet period needs to be used to get the existing resource pool ready for the
next big wave. Most programmers are too caught up in the daily quotidian tasks to catch up
on the latest technical advances, and appreciate breakthroughs that will sweep the IT world.
To address this gap, workshops and technical trainings to educate the workforce should be
held at regular intervals. Similar sessions on soft-skills and cultural orientation programs
should be conducted to make the people more customer-centric.

Service Oriented Architecture, Software-as-a-Service, Cloud Paradigm (or desktop

virtualization) are emerging as some of the biggest IT trends. Additionally, platform
consolidation is the biggest IT change that many CIOs have on their radar. Much of the work
coming along will be governed by these trends. The software designers should be brought up
to speed on these new trends, and the programmers trained on the technologies that underline
these trends.

Upside down in a Flat World

Cut-throat competition from global players and the falling dollar has squeezed the margins
for typical run-of-the-mill work. Yes, consulting is a niche that eventually all Indian IT
companies would want to get into. But basic factors like maturity (dearth of experienced
consultants), perception (image of Indian IT firms as application developers and
implementors) and location (failing of global delivery model in primarily client based work)
will hinder any real inroads into the consulting space.
The trick is to innovate - not necessarily do different things, but do things differently. In that
regard, the focus on innovation of some of the top Indian companies is a step in the right
direction. Wipro's Applied Innovation Framework lays down a roadmap for systemic change
to deliver sustainable business benefits.
Summing IT up

This is indeed a tricky time for the Indian IT industry, but there's no real reason to panic. The
IT guns showed great character and resilience during the years following the dot com bust.
They are wise enough to read the signs and realize that change is in order. With a slight
course correction and an unswerving view on the long-term, the India IT industry can emerge
stronger and bigger.
Recession & Oil Demand

Oil industry players find themselves buffeted by contradictory trends. On the one hand, the
oil supply has not expanded adequately in recent years to accommodate demand from
emerging markets. On the other, the current recession has led to a collapse of near-term
demand. Energy investors and oil industry managers are left mulling how to respond to the
current environment and whether to forge ahead with investment or wait cautiously on the
sidelines. Understanding the linkage between recession and oil demand may provide some
guidance.

The US has regularly suffered recessions. According to the National Bureau of Economic
Research (NBER), recession has struck America 20 times in the last century, every five years
on average. It is not a rare or unusual event. In fact, it is the relatively unbroken prosperity of
the last 25 years which is unprecedented. There is no comparable period since economic
statistics were first gathered.

As financial crises go, the current recession is arguably the worst since the Crash of 1929.
However, as recessions go, the current economic situation is relatively severe, worse than
those of 1991 or 2001, for example, but to date less severe than the double-dip recession of
1980-1983. Most recessions last less than 18 months from peak to trough and in fact only
three in the last century, including the Great Depression, were longer. Economists are
currently split on the course of the recession. Some argue for a mid-year trough, which would
represent an 18 month contraction. This represents the more optimistic case. It is supported
by January job loss numbers at expected levels and by the relative stability in share prices,
which tend to bottom six months before the real economy. More pessimistic economists point
to weaker than expected consumer spending and project a Q3 trough.

How does oil demand respond in recessions?

In the US, oil demand declines during recessions. In a mild recession, as in 1991 and 2001,
demand will drop from peak by about 0.5 million barrels per day (mbpd), or about 3%,
during the trough month. In a severe recession, as in 1974 or 1981, demand will fall by
perhaps 1 mbpd, or as much as 7%. In the current recession, oil demand briefly dropped
nearly 3 mbpd from its peak, about half of which occurred in September 2008 in the
aftermath of the collapse of financial markets following the bankruptcy of the investment
bank Lehman Brothers. If we allow that this will be a severe – but not catastrophic –
recession, then a drop of 7%, or 1.5 mbpd of US consumption from peak to trough, is entirely
possible. This would suggest US demand could fall from its December 2007 level of 20.3
mbpd to 18.5-.19.0 mbpd near the middle of this year.

How does the US experience translate into global impact?

Until Until 1990, US business cycles dominated global oil markets. The US recessions of
1974 and 1979 (following the Iran crisis) were widely felt and in both cases global
consumption fell. However, after 1990, US recessions barely registered on global oil
consumption and trend lines remained largely intact.

The current recession has had a dramatic effect on global oil consumption which in
September 2008 fell 3 mbpd below its historical peak, with most of this explained by the drop
in US consumption. Going forward, global consumption could drop by up to 7% from peak to
trough, that is, by 6 mbpd. However, the emerging economies are unlikely to fall as much;
therefore, a total drop of around 4 mbpd (about 5%) to 83 mbpd would seem in the right
range.

This projection comes with a significant caveat. In the first half of 2008, sky-high oil prices
were visibly suppressing consumption and indeed the lion’s share of decrease in US
consumption occurred during the first half of the year. With the collapse of the oil price, fuel
has become much more affordable, enticing drivers back into their cars. This shows in the
EIA’s statistics. Although US consumption has remained below peak levels, the gap
narrowed every month from September through to year-end. For December, global demand,
as recorded by the EIA, shattered the all-time record of November 2007 by 1.2 mbpd. These
numbers suggest that low oil prices, even in a weak economy, can stimulate demand.
More recently, the trend appears to be reversing itself. Provisional EIA figures for January
suggest a drop in US demand of approximately 400,000 barrels per day from December,
suggesting that falling incomes are beginning to outweigh lower oil prices. By rights, global
oil demand should decline perhaps 2-3 mbpd by the end of the first quarter.

And what of the recovery?

As a crude rule of thumb, the recovery from the trough should take approximately as long as
the drop from the previous peak to the trough. Therefore, if we assume that the current
recession will last 18 months and bottom in mid-year 2009, then consumption should recover
its earlier peaks around the beginning of 2011. Where will it go from there? The recession of
1980-1983 shows that oil demand can stay suppressed for many years. Nearly a decade
passed until global oil consumption regained its 1979 levels. But that period was anomalous.
Demand dropped because OPEC raised the price of oil to nearly $40 / barrel from $15 and it
stayed above $30 until 1986 when two recessions had managed to wring incremental demand
out of the system.

A more likely scenario is one which has accompanied every other recession in the last 35
years. In these, after the recession, demand recovered its earlier level in fairly short order. In
some cases, the recovery from a recession was accompanied by soaring demand. For
example, from the end of the first oil shock in 1974 until the second oil shock of 1979,
demand increased by nearly 9 mbpd. What was occurring during this period? The US and
Western Europe were completing the process of motorization. The automobile was becoming
a staple of everyday life.

How will oil demand recover from this recession? The driver is likely to be China, just as it
has been since 2003. China is becoming middle class and with that comes an appetite for
automobiles. The country is already the world’s largest manufacturer of vehicles and will
quickly become the world’s largest car market. The process of motorization experienced in
the western world from 1950-1970 is beginning to occur in China now. And China has by far
the world’s biggest labor force, of 800 million, almost twice that of America, the European
Union and Japan combined. As they become wealthier, many Chinese will be looking to
acquire a vehicle. How will this affect oil demand? Consider a similar period in western
development: In just 12 years, from 1960 to 1972, global oil demand increased by almost 30
mbpd, nearly four times the current output of Saudi Arabia.

Therefore, the recovery may look more like the recovery of 1974, where a decline in demand
was followed by a rapid rebound.

How should an investor or acquirer time the market?

Oil demand is a coincident indicator for economic activity: it typically peaks with peak
economic activity and bottoms at the trough of the recession. Therefore, the impact of weak
demand should be most acute for the oil sector when the economy hits bottom. As we do not
discount more optimistic forecasts for a mid-year bottom for the economy, we believe
investors would be better served by being prepared to lock in transaction values at that time
(noting here that we have not made any estimate of the timing of oil demand to equity
valuations, corporate liquidity positions, or negotiating psychology). Investors should
consider making investment preparations in the first quarter – assessing markets, preparing
strategy, obtaining approvals and selecting targets – to be prepared to capitalize on emerging
opportunities from the second quarter forward. Bleak as the recession can be, 2009 may well
be remembered as the entry point for the next economic cycle.
IMPACT OF RECESSION ON REAL ESTATE INDUSTRY

The Development of real estate in India is attributed to the off-shoring and outsourcing
businesses, such as high-end technology consultation, call centres and programming houses.
The demand from the information technology sector certainly has changed the urban
landscape in India. Several multinational companies (MNCs) continue to move their
organizational operations to India to take advantage of lower manpower and other costs.
Providing human resources and home at their work place assumes great significance and
therefore, the requirement to create space for people to live and work that in turn causes the
development of other related infrastructure. It has been a predominant trend to set up the
world´s best business centres, often campus-style establishments, bearing a distinguishing
corporate stamp. Some of these locations are so distinctive that they are termed as the
´temples of new or modern India´. It is just an indication of the extent to which the
development of real estate has been taking place.

The real estate market in India remains unorganized, fairly fragmented, mostly characterized
by small players with a local presence. Traditionally, real estate developers were viewed with
an element of skepticism. Developers were often identified dealing with large amounts of
unaccounted money, lacking transparency and would use unscrupulous mean to acquire a
variety of regulatory approvals. The tremendous growth of the real estate sector is attributed
to various fundamental factors such as growing economy, growing business needs, etc. This
boom however is restricted to areas such as commercial office space, retail and housing
sectors. The impending concerns of this sector namely- skill shortage, non availability of
statistics, lack of low cost-affordable housing, lack of sustainability, high RE prices and last,
to meet a future that might have downturn due to oversupply.

The industry is presently facing a major resource crunch – an obvious lack of qualified
skilled people from construction firms, PMC firms, etc. Coupled with this manpower
shortage is the shortage of availability of relevant statistics which has created an ambiguity as
to how much construction activity is actually taking place and one can´t gauge the demand
and supply trends accurately. The opportunities and issues of affordable, low cost housing in
India are mainly related with tremendous shortfall of middle class housing as majority of the
developers are involved in developing high class housing, so there is a dearth of low cost
affordable units. The negative version of Indian real estate industry is “they have complete
disrespect for sustainability” and that the concept of green buildings, proper waste disposal
methods and the longevity of the product are often dismissed.

Presently, the impact of recession in US economy has impacted Indian Real Estate Market as
well as it is also witnessing the recession. Till now the real estate industry was a very
booming industry in India which were in pace with IT industry. Accordingly, the demand for
IT space and Commercial spaces has been grown. Also the high net worth of individual
investors has created a very fast pace of demand in Indian real estate sector which have gain a
very high impact image of investing in India.

As the money was coming in terms on investment in India from NRI as well as Private
Equity funds, the well known developers and real estate players have grown their portfolio as
well many small sized players have also created in Indian market. It has provided a very high
supply of real estate segments either in residential or in commercial or in office space. SEZ
has also creates a very good opportunities for investors as well as corporate to invest and get
benefited from Indian real estate market. So the booming market has created a niche as
modern living in India and created a very mass employment in Indian segment.

The recent changes which happened in American market such as Bankruptcy of Lehman
Brother an oldest financial firm of American market and sell process of PE Firm Merryl
lynch by the largest US bank Bank of America has created a very fast drops/recession in
financial industry and created a crisis in all over US economy. Both of these firms were
invested their more part of funds in to real estate sector without having the proper analyzing
or effect. They also have given the funds for mortgage industry of US which is currently
facing the hurdle of Sub prime lending and have impacted many players to bankrupt.

All of these changes in US economy have impacted in Indian economy as well as Real estate
segment as most of the Indian players have their liquidity funded by both of these firms. Also
the IT segment which was mainly funded by the PE firms or have their export to US markets
have noticed very sharp drop of net worth of their firms. This recession also impacted the
Sensex which has bullish very sharply and brings down the net worth of the leader of Indian
real estate player very low. The impact can be shown in share price of DLF, Unitech, GMR
group, Reliance group, Wipro, Satyam etc groups.
All of these sudden changes in Indian and US market created a point of thinking to investors
& individuals that where it will go and what will be best option in real estate investment. The
market rates in India are also dropped by 10 to 30% in most of prominent as well as
upcoming cities and the trend appears to be still continuing till it will not recover the effects
of this financial crisis.

IMPACT OF THE RECESSION ON BANKING INDUSTRY

Global outlook

1.         The global economic outlook deteriorated sharply over the last quarter.  In a sign of
the ferocity of the down turn, the IMF made a marked downward revision of its estimate for
global growth in 2009 in purchasing power parity terms – from its forecast of 3.0 per cent
made in October 2008 to 0.5 per cent in January 2009. In market exchange rate terms, the
downturn is sharper – global GDP is projected to actually shrink by 0.6 per cent. With all the
advanced economies – the United States, Europe and Japan - having firmly gone into
recession, the contagion of the crisis from the financial sector to the real sector has been
unforgiving and total.  Recent evidence suggests that contractionary forces are strong:
demand has slumped, production is plunging, job losses are rising and credit markets remain
in seizure. Most worryingly, world trade – the main channel through which the downturn will
get transmitted on the way forward – is projected to contract by 2.8 per cent in 2009. 

2.         Policy making around the world is in clearly uncharted territory.  Governments and
central banks across countries have responded to the crisis through big, aggressive and
unconventional measures. There is a contentious debate on whether these measures are
adequate and appropriate, and when, if at all, they will start to show results.  There has also
been a separate debate on how abandoning the rule book driven by the tyranny of the short-
term, is compromising medium-term sustainability.  What is clearly beyond debate  though is
that this Great Recession of 2008/09 is going to be deeper and the recovery longer than
earlier thought.   

Emerging economies

3.         Contrary to the 'decoupling theory', emerging economies too have been hit by the
crisis.  The decoupling theory, which was intellectually fashionable even as late as a year ago,
held that even if advanced economies went into a downturn, emerging economies will remain
unscathed because of their substantial foreign exchange reserves, improved policy
framework, robust corporate balance sheets and relatively healthy banking sector.  In a
rapidly globalizing world, the 'decoupling theory' was never totally persuasive.  Given the
evidence of the last few months – capital flow reversals, sharp widening of spreads on
sovereign and corporate debt and abrupt currency depreciations - the 'decoupling theory'
stands totally invalidated.  Reinforcing the notion that in a globalized world no country can
be an island, growth prospects of emerging economies have been undermined by the
cascading financial crisis with, of course, considerable variation across countries. 

Questions that will be addressed

4.         India too has been impacted by the crisis – and by much more than it was suspected
earlier. What I propose to do in the rest of my speech is to address the following four
questions:  

i. Why has India been hit by the crisis?

ii. How has India been hit by the crisis?
iii. How have we responded to the challenge?
iv. What is the outlook for India?

Why Has India Been Hit By the Crisis?

5.         There is, at least in some quarters, dismay that India has been hit by the crisis.  This
dismay stems from two arguments.  

6.         The first argument goes as follows.  The Indian banking system has had no direct
exposure to the sub-prime mortgage assets or to the failed institutions.  It has very limited
off-balance sheet activities or securitized assets.  In fact, our banks continue to remain safe
and healthy.  So, the enigma is how can India be caught up in a crisis when it has nothing
much to do with any of the maladies that are at the core of the crisis. 

7.         The second reason for dismay is that India's recent growth has been driven
predominantly by domestic consumption and domestic investment. External demand, as
measured by merchandize exports, accounts for less than 15 per cent of our GDP.  The
question then is, even if there is a global downturn, why should India be affected when its
dependence on external demand is so limited?       

8.         The answer to both the above frequently-asked questions lies in globalization.  Let me
explain.  First, India's integration into the world economy over the last decade has been
remarkably rapid. Integration into the world implies more than just exports.  Going by the
common measure of globalization, India's two-way trade (merchandize exports plus imports),
as a proportion of GDP, grew from 21.2 per cent in 1997-98, the year of the Asian crisis, to
34.7 per cent in 2007-08.   

9.         Second, India's financial integration with the world has been as deep as India's trade
globalization, if not deeper. If we take an expanded measure of globalization, that is the ratio
of total external transactions (gross current account flows plus gross capital flows) to GDP,
this ratio has more than doubled from 46.8 per cent in 1997-98 to 117.4 per cent in 2007-08. 

10.       Importantly, the Indian corporate sector's access to external funding has markedly
increased in the last five years.  Some numbers will help illustrate the point. In the five-year
period 2003-08, the share of investment in India's GDP rose by 11 percentage points.
Corporate savings financed roughly half of this, but a significant portion of the balance
financing came from external sources. While funds were available domestically, they were
expensive relative to foreign funding. On the other hand, in a global market awash with
liquidity and on the promise of India's growth potential, foreign investors were willing to take
risks and provide funds at a lower cost.  Last year (2007/08), for example, India received
capital inflows amounting to over 9 per cent of GDP as against a current account deficit in
the balance of payments of just 1.5 per cent of GDP. These capital flows, in excess of the
current account deficit, evidence the importance of external financing and the depth of India's
financial integration.

11.       So, the reason India has been hit by the crisis, despite mitigating factors, is clearly
India's rapid and growing integration into the global economy.

How Has India Been Hit By the Crisis?

12.       The contagion of the crisis has spread to India through all the channels – the financial
channel, the real channel, and importantly, as happens in all financial crises, the confidence
channel. 

13.       Let us first look at the financial channel.  India's financial markets - equity markets,
money markets, forex markets and credit markets - had all come under pressure from a
number of directions.  First, as a consequence of the global liquidity squeeze, Indian banks
and corporates found their overseas financing drying up, forcing corporates to shift their
credit demand to the domestic banking sector. Also, in their frantic search for substitute
financing, corporates withdrew their investments from domestic money market mutual funds
putting redemption pressure on the mutual funds and down the line on non-banking financial
companies (NBFCs) where the MFs had invested a significant portion of their funds. This
substitution of overseas financing by domestic financing brought both money markets and
credit markets under pressure.  Second, the forex market came under pressure because of
reversal of capital flows as part of the global deleveraging process. Simultaneously,
corporates were converting the funds raised locally into foreign currency to meet their
external obligations.  Both these factors put downward pressure on the rupee.  Third, the
Reserve Bank's intervention in the forex market to manage the volatility in the rupee further
added to liquidity tightening. 

14.       Now let me turn to the real channel. Here, the transmission of the global cues to the
domestic economy has been quite straight forward – through the slump in demand for
exports. The United States, European Union and the Middle East, which account for three
quarters of India's goods and services trade are in a synchronized down turn. Service export
growth is also likely to slow in the near term as the recession deepens and financial services
firms – traditionally large users of outsourcing services – are restructured. Remittances from
migrant workers too are likely to slow as the Middle East adjusts to lower crude prices and
advanced economies go into a recession.

15.       Beyond the financial and real channels of transmission as above, the crisis also spread
through the confidence channel.  In sharp contrast to global financial markets, which went
into a seizure on account of a crisis of confidence, Indian financial markets continued to
function in an orderly manner.  Nevertheless, the tightened global liquidity situation in the
period immediately following the Lehman failure in mid-September 2008, coming as it did
on top of a turn in the credit cycle, increased the risk aversion of the financial system and
made banks cautious about lending.

16.       The purport of the above explanation is to show how, despite not being part of the
financial sector problem, India has been affected by the crisis through the pernicious
feedback loops between external shocks and domestic vulnerabilities by way of the financial,
real and confidence channels.

How Have We Responded to the Challenge?

17.       Let me now turn to how we responded to the crisis.  The failure of Lehman Brothers
in mid-September was followed in quick succession by several other large financial
institutions coming under severe stress.  This made financial markets around the world
uncertain and unsettled.  This contagion, as I explained above, spread to emerging
economies, and to India too. Both the government and the Reserve Bank of India responded
to the challenge in close coordination and consultation. The main plank of the government
response was fiscal stimulus while the Reserve Bank's action comprised monetary
accommodation and counter cyclical regulatory forbearance.

Monetary policy response

 18.       The Reserve Bank's policy response was aimed at containing the contagion from the
outside - to keep the domestic money and credit markets functioning normally and see that
the liquidity stress did not trigger solvency cascades. In particular, we targeted three
objectives: first, to maintain a comfortable rupee liquidity position; second, to augment
foreign exchange liquidity; and third, to maintain a policy framework that would keep credit
delivery on track so as to arrest the moderation in growth. This marked a reversal of Reserve
Bank's policy stance from monetary tightening in response to heightened inflationary
pressures of the previous period to monetary easing in response to easing inflationary
pressures and moderation in growth in the current cycle. Our measures to meet the above
objectives came in several policy packages starting mid-September 2008, on occasion in
response to unanticipated global developments and at other times in anticipation of the
impact of potential global developments on the Indian markets.
19.       Our policy packages included, like in the case of other central banks, both
conventional and unconventional measures. On the conventional side, we reduced the policy
interest rates aggressively and rapidly, reduced the quantum of bank reserves impounded by
the central bank and expanded and liberalized the refinance facilities for export credit.
Measures aimed at managing forex liquidity included an upward adjustment of the interest
rate ceiling on the foreign currency deposits by non-resident Indians, substantially relaxing
the external commercial borrowings (ECB) regime for corporates, and allowing non-banking
financial companies and housing finance companies access to foreign borrowing.

20.       The important among the many unconventional measures taken by the Reserve Bank
of India are a rupee-dollar swap facility for Indian banks to give them comfort in managing
their short-term foreign funding requirements, an exclusive refinance window as also a
special purpose vehicle for supporting non-banking financial companies, and expanding the
lendable resources available to apex finance institutions for refinancing credit extended to
small industries, housing and exports.

Government's fiscal stimulus

21.       Over the last five years, both the central and state governments in India have made a
serious effort to reverse the fiscal excesses of the past.  At the heart of these efforts was the
Fiscal Responsibility and Budget Management (FRBM) Act which mandated a calibrated
road map to fiscal sustainability. However, recognizing the depth and extraordinary impact of
this crisis, the central government invoked the emergency provisions of the FRBM Act to
seek relaxation from the fiscal targets and launched two fiscal stimulus packages in
December 2008 and January 2009.  These fiscal stimulus packages, together amounting to
about 3 per cent of GDP, included additional public spending, particularly capital
expenditure, government guaranteed funds for infrastructure spending, cuts in indirect taxes,
expanded guarantee cover for credit to micro and small enterprises, and additional support to
exporters. These stimulus packages came on top of an already announced expanded safety-
net for rural poor, a farm loan waiver package and salary increases for government staff, all
of which too should stimulate demand.

Impact of monetary measures

22.       Taken together, the measures put in place since mid-September 2008 have ensured
that the Indian financial markets continue to function in an orderly manner. The cumulative
amount of primary liquidity potentially available to the financial system through these
measures is over US$ 75 bln or 7 per cent of GDP. This sizeable easing has ensured a
comfortable liquidity position starting mid-November 2008 as evidenced by a number of
indicators including the weighted-average call money rate, the overnight money market rate
and the yield on the 10-year benchmark government security.  Taking the signal from the
policy rate cut, many of the big banks have reduced their benchmark prime lending rates.
Bank credit has expanded too, faster than it did last year. However, Reserve Bank’s rough
calculations show that the overall flow of resources to the commercial sector is less than what
it was last year. This is because, even though bank credit has expanded, it has not fully offset
the decline in non-bank flow of resources to the commercial sector.

Evaluating the response

23.       In evaluating the response to the crisis, it is important to remember that although the
origins of the crisis are common around the world, the crisis has impacted different
economies differently. Importantly, in advanced economies where it originated, the crisis
spread from the financial sector to the real sector. In emerging economies, the transmission of
external shocks to domestic vulnerabilities has typically been from the real sector to the
financial sector. Countries have accordingly responded to the crisis depending on their
specific country circumstances. Thus, even as policy responses across countries are broadly
similar, their precise design, quantum, sequencing and timing have varied. In particular,
while policy responses in advanced economies have had to contend with both the unfolding
financial crisis and deepening recession, in India, our response has been predominantly
driven by the need to arrest moderation in economic growth. 

What is the outlook for India?

24.       The outlook for India going forward is mixed. There is evidence of economic activity
slowing down. Real GDP growth has moderated in the first half of 2008/09. The services
sector too, which has been our prime growth engine for the last five years, is slowing, mainly
in construction, transport and communication, trade, hotels and restaurants sub-sectors. For
the first time in seven years, exports have declined in absolute terms for three months in a
row during October-December 2008. Recent data indicate that the demand for bank credit is
slackening despite comfortable liquidity in the system. Higher input costs and dampened
demand have dented corporate margins while the uncertainty surrounding the crisis has
affected business confidence. The index of industrial production has shown negative growth
for two recent months and investment demand is decelerating. All these factors suggest that
growth moderation may be steeper and more extended than earlier projected.

25.       In addressing the fall out of the crisis, India has several advantages. Some of these are
recent developments. Most notably, headline inflation, as measured by the wholesale price
index, has fallen sharply, and recent trends suggest a faster-than-expected reduction in
inflation. Clearly, falling commodity prices have been the key drivers behind the disinflation;
however, some contribution has also come from slowing domestic demand. The decline in
inflation should support consumption demand and reduce input costs for corporates.
Furthermore, the decline in global crude prices and naphtha prices will reduce the size of
subsidies to oil and fertilizer companies, opening up fiscal space for infrastructure spending.
From the external sector perspective, it is projected that imports will shrink more than exports
keeping the current account deficit modest.

26.       There are also several structural factors that have come to India's aid. First,
notwithstanding the severity and multiplicity of the adverse shocks, India's financial markets
have shown admirable resilience. This is in large part because India's banking system remains
sound, healthy, well capitalized and prudently regulated. Second, our comfortable reserve
position provides confidence to overseas investors. Third, since a large majority of Indians do
not participate in equity and asset markets, the negative impact of the wealth loss effect that
is plaguing the advanced economies should be quite muted. Consequently, consumption
demand should hold up well. Fourth, because of India's mandated priority sector lending,
institutional credit for agriculture will be unaffected by the credit squeeze. The farm loan
waiver package implemented by the Government should further insulate the agriculture
sector from the crisis. Finally, over the years, India has built an extensive network of social
safety-net programmes, including the flagship rural employment guarantee programme,
which should protect the poor and the returning migrant workers from the extreme impact of
the global crisis.

RBI's Policy Stance

27.       Going forward, the Reserve Bank's policy stance will continue to be to maintain
comfortable rupee and forex liquidity positions. There are indications that pressures on
mutual funds have eased and that NBFCs too are making the necessary adjustments to
balance their assets and liabilities. Despite the contraction in export demand, we will be able
to manage our balance of payments. It is the Reserve Bank's expectation that commercial
banks will take the signal from the policy rates reduction to adjust their deposit and lending
rates in order to keep credit flowing to productive sectors. In particular, the special refinance
windows opened by the Reserve Bank for the MSME (micro, small and medium enterprises)
sector, housing sector and export sector should see credit flowing to these sectors. Also the
SPV set up for extending assistance to NBFCs should enable NBFC lending to pick up steam
once again. The government's fiscal stimulus should be able to supplement these efforts from
both supply and demand sides.

When the turn around comes

28.       Over the last five years, India clocked an unprecedented nine per cent growth, driven
largely by domestic consumption and investment even as the share of net exports has been
rising. This was no accident or happenstance. True, the benign global environment, easy
liquidity and low interest rates helped, but at the heart of India's growth were a growing
entrepreneurial spirit, rise in productivity and increasing savings. These fundamental
strengths continue to be in place. Nevertheless, the global crisis will dent India's growth
trajectory as investments and exports slow. Clearly, there is a period of painful adjustment
ahead of us. However, once the global economy begins to recover, India's turn around will be
sharper and swifter, backed by our strong fundamentals and the untapped growth potential.
Meanwhile, the challenge for the government and the RBI is to manage the adjustment with
as little pain as possible.
Q. 1 Are you aware about RECESSION?

OPTIONS RESPONDENTS PERCENTAGE

Yes 50 100%
No 00 0%
Can’t say 00 0%

yes
no
can't say

INTERPRETATION:

All respondents are aware about recession

Q.2 What is RECESSION?

 OPTIONS RESPONDENTS PERCENTAGE
Increase in price of goods 6 12%

Decrease in value of 19 38%

money
Both 24 48%

Nothing 01 2%

Column1

Increase in price of goods

Decrease in value of money
Both
Nothing

INTERPRETATION:

According to respondents recession means both increase in price and decrease in value of
money.
Q.3 What are the reasons of RECESSION?

OPTIONS RESPONDSENTS PERCENTAGE

Unemployment 03 6%
Higher Production 04 8%
International unexpected 39 78%
fluctuations
Unexpected capital 04 8%
expenditure

Unemployment
Higher Production
International unexpected
fluctuations
Unexpected capital expenditure

INTERPRETATION:

According to mostly respondents main reason for recession is international unexpected

fluctuations.
Q.4 Are you aware about current RECESSION in the economy?

OPTIONS RESPONDENTS PERCENTAGE

Yes 50 100%
No 0 0%

YES
NO

INTERPRETATION:

All respondents are aware about current recession.

Q.5 The trend of market in the RECESSION?

OPTIONS RESPONDENTS PERCENTAGE

Goes down 32 64%
Goes up 02 4%
Both 09 18%
Can’t say 07 14%

Goes down
Goes up
Both
Can't say

INTERPRETATION:

Mostly respondents think that market trend goes downward in recession period.
Q.6. Is any particular country most affected by recession?

Options Respondents Percentage

America 24 48%
India 5 20%
England 6 12%
World Economy as a 15 30%
whole

America
India
England
World Economy as a whole

INTERPRETATION:

After the survey it was got that the America is most effected country in the world and after it
the most effected is world economy as a whole.
Q.7. Is the foreign investment in India create a reason for recession?

OPTIONS RESPONDENTS PERCENTAGE

Yes 15 30%
No 13 26%
Can’t say 22 44%

Yes
No
Can’t say

INTERPRETATION:

Mostly respondents are in dilemma about the reason of recession in India due to foreign
Investment.
Q.6 Do you think that freshers get the job in this RECESSION period?

OPTIONS RESPONDENTS PERCENTAGE

Yes 12 24%
No 16 32%
Can’t say 22 44%

Yes
No
Can't say

INTERPRETATION:

Mostly respondents are in dilemma about job prospects.

Q.7 If yes then, what type of courses are required to get good job in this RECESSION
period?

OPTIONS RESPONDENTS PERCENTAGE

Technical 15 30%
Non- Technical 04 8%
Experience 19 38%
Others 12 24%

Technical
Non-Technical
Experience
Others

INTERPRETATION:

Data shows that experience is crucial factor to get a good job.

Q.8 What package do you expect in NORMAL ECONOMIC situation?

OPTIONS RESPONDENTS PERCENTAGE

Below 2 Lakh 05 10%
3-4 Lakh 24 48%
4-5 Lakh 13 26%
More than 5 Lakh 08 16%

Below 2 lakh
3-4 lakh
4-5 lakh
More than 5 lakh

INTERPRETATION:

The package expected by respondents is 3-4 lakh in normal economic conditions.

Q.9 What package do you expect in RECESSION time period?

OPTIONS RESPONDENTS PERCENTAGE

1-2 Lakh 09 18%
2-3 Lakh 29 58%
3-4 Lakh 04 8%
Above 4 Lakh 08 16%

Chart Title

1-2 Lakh
2-3 Lakh
3-4 Lakh
Above 4 Lakh

INTERPRETATION:

Package expectations revolve around 2-3 lakh in recession period.

Q.10 Is political instability create a reason for RECESSION?

OPTIONS RESPONDENTS PERCENTAGE

Yes 12 24%
No 17 34%
Can’t say 21 42%

Yes
No
Can

INTERPRETATION:

Mostly respondents either don’t have clear idea or they don’t think political stability as the
reason.
Q.11 What action should be taken by the government to balancing the economy?

OPTIONS RESPONDENTS PERCENTAGE

Tax cutting 05 10%
Capital Invt. In Manf. Ind. 31 62%
Exemptions 05 10%
Job fairs 04 8%
Others 02 4%
Fake responses 03 6%

Tax cutting
Capital Invt. In Manf. Ind
Exemptions
Job fairs
Others
Fake responses

INTERPRETATION:

The respondents feel that capital investment in manufacturing industries is the best way to
balance the economy.
Q.12 What will be your solution to deal with RECESSION?

OPTIONS RESPONDENTS PERCENTAGE

RBI Efforts 08 16%
WPI 06 12%
Govt. Incentives 09 18%
Collective efforts 23 46%
Others 04 8%

RBI Efforts
WPI
Govt. Incentives
Collective efforts
Others

INTERPRETATION:

Among all the above options collective efforts proves to be the best solution to deal with
recession.
 FINDINGS

 Everyone knows about the current recession in the economy.

 Job opportunities are declining.
 Package expectations have been decreased to 2-3 lakh from 3-4 lakh due to downward
trend in the economy.
 Collective effort comes out to be deal with the problem.
 8 15709750 Business
SUGGESTION

The following measures can be adopted to tackle the recession:

 Tax cuts are generally the first step any government takes during slump.
 Government should hike its spending to create more jobs and boost the manufacturing sectors
in the country.
 Government should try to increase the export against the initial export.
 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.
 The falling rupees against the dollar will bring a boost in the export industry. Though the
buyers in the west might become scarce.
 The oil prices decline will also have a positive impact on the importers.
 CONCLUSION
RECESSIONS ARE the result of reduction in the demand of products in the global market.
Recession can also be associated with falling prices known as deflation due to lack of
demand of products. Again, it could be the result of inflation or a combination of increasing
prices and stagnant economic growth in the west.

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.

IT industries, financial sectors, real estate owners, car industry, investment banking and other
industries as well are confronting heavy loss due to the fall down of global economy.
Federation of Indian chambers of Commerce and Industry (FICCI) found that faced with the
global recession, inventories industries like garment, gems, textiles, chemicals and jewellery
had cut production by 10 per cent to 50 per cent.
 LIMITATIONS OF THE STUDY

As every study has some limitations, this study is not an exception too regarding limitations.
Some of the main limitations that I had to face while working on this project are highlighted
as under: -

1. Limited area of operation that’s only few areas are covered in this project.
2. Lack of experience of the researchers may cause some errors.
3. The survey was based on questionnaire and questionnaire was based on perception. 
4. There was lack of time on the part of respondent and for me also it was not possible to
go into every nook and corner of the study.
 BIBLIOGRAPHY

BOOKS

1. Malhotra K Naresh (2005),” Marketing Research. An applied orientation, Fourth Edition

Prentice Hall of India Pvt. Ltd.
2. Kothari CR, Research Methodology, Vishwa Prakashan Ltd , Second Edition , New Delhi.

Internet Source
1. www.adrelevance.com
2. www.businessworld.com
3. www.google.com
4. www.msn.com
5. www.answers.com
 Questionnaire

Dear respondent,
I, HARIOM conducting the survey on “Impact Of Recession On Freshers In
Corporate World” which is a part of M.B.A. Program. All the information provided by you
will be kept secret & will be used exclusively for academic purpose
Name ____________________________________
Address __________________________________
Contact No. ________________________________
Educational Qualification ____________________
Q. 1 Are you aware about RECESSION?
(a) Yes
(b) No
(c) Can’t say
Q.2 What is RECESSION?
(a) Increase in the price of goods
(b) Decrease in value of money
(c) Both
(d) Nothing
Q.3 What are the reasons of RECESSION?
(a) Unemployment
(b) Higher production
(c) International Unexpected fluctuation
(d) Unexpected Capital Expenditure

Q.4 Are you aware about current RECESSION in the economy?

(a) Yes

(b) No
Q.5 The trend of market in the RECESSION?
(a) Goes down
(b) Goes up

(c) Both

(d) Can’t say

Q.6. Is any particular country most affected by recession?

(a) America
(b) India
(c) England
(d) World Economy as a whole

Q.7. Is the foreign investment in India create a reason for recession?

Yes
No
Can’t Say

Q.8 Do you think that freshers get the job in this RECESSION period?
(a) Yes
(b) No
(c) Can’t say

Q.9 If yes then, what type of courses are required to get good job in this RECESSION
period?

(a) Technical
(b) Non-Technical
(c) Experience
(d) Others
Q.10 What package do you expect in NORMAL ECONOMIC situation?
(a) Below 2 lakh
(b) 3 – 4 lakh
 (c) 4 – 5 lakh
(d) More than 5 lakh

Q.11 What package do you expect in RECESSION time period?

(a) 1 – 2 lakh
(b) 2 – 3 lakh
(c) 3 – 4 lakh
(d) Above 4 lakh
Q.12 Is political instability create a reason for RECESSION?
(a) Yes
(b) No
(c) Can’t say
IF YES THEN SPECIFY …………………………………….
Q.13 What action should be taken by the government to balancing the economy?
(a) Tax cutting
(b) Capital investment in
Manufacturing industries (capital formation)
(c) Exemptions
(d) Job fairs
(e) Any other

Q.14 What will be your solution to deal with RECESSION?

(a) RBI efforts
(b) Wholesale Price Index
(c) Govt. Incentive
(d) Collective Efforts

(e) Others (specify) ________________________________

DATE: SIGN.