Dipayan Datta

Avishek Karmakar
Nirupam Saha
Anupam Konwar
 A Recession is a contraction phase of the business
cycle
 A country is to be in recession when it has recorded
negative growth for 2 successive quarters.
 Consumers and investors lose confidence.
 Demand decreases.
 Adverse effect on sales and profit.
 Rise in unemployment
• Sub-prime mortgage crisis.
• Investment in stocks declined.
• Stock exchange crashed.
• Fall in consumer consumption.
• Value of dollar declined.
But here was the ‘Hitch’!!!!!!!!!!!!!!
 Subprime Home Interest rate to be
loans given as Interest paid on floating
floating rate home rate goes rate home loans
loans up also go up

EMI that need to be

paid to service these
loans also go up

FIs not paid back

Higher EMIs hit hard
leading to piling of
the sub prime
losses ultimately
borrowers leading to
leading to ‘crisis’
repayment defaults
The Housing Price Crash
• Indian companies have outsourcing deals with U.S. financial
companies.
• Rise in unemployment in India.
• 2 lakh jobs lost in I.T sector.
• Exports like garment export, gems and jewellery, spices and
leather goods are the worst affected.
• Foreign capital flows decreased.
• RBI decreased CRR and Repo rates to increase liquidity.
• IT Industries, financial sectors, Real estate owners, Car
Industries, and other industries as well were confronting
heavy loss due to the fall down global economy.
• Inflation and Psycological impact of the US crisis.
• Benefits were missing as companies look to cut cost.
• One of the casualities 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 finance.
• Indian banks were facing through a tough time of
liquidity crunch. Lehman Brothers had invested a
great amount in the stocks of Indian Banks that
have invested in derivatives.
• The Indian sensex swung violently downward,
mainly because of the foreign companies pulling
out credits to meet high inflations.
• Central Bank have worked to improve liquidity but
are charging higher credits. The interest rates have
drastically increased from 11.5% to near about 16%.
• Car, bike and truck sales DOWN.
• Hospitality and airline were hit by poor demand.
• Government and other private companies were
reluctant in starting new ventures and starting new
projects.
• The textile, garment and handcraft industries were
worse effected. They lost near about four million jobs
by April, 2009, according to the FICO
• Companies in private sector and government sector
were hesitant to take up new projects. And they were
working on existing projects only.
• Many people had sold the shares.
• Foreign investors had pulled out from stock
market.
• Stock-broking houses were laying off people.
• People had started saving money.
• Additional planned expenditure of `20,000cr.
• Ensure full utilization of the funds provided.
• Total planned and non-planned expenditure exceed `30,000cr
• Government reduced CENVAT by 4%.
• CENVAT also reduced on petroleum product by 4,5 & 8
percent for different categories.
• Funds of Rs.1100 cr will be provided to ensure full refund of
Terminal Excise duty/CST.
• Additional allocation for export incentive schemes of Rs.350
cr will be made.
•RBI announced a refinance facility of Rs.7000 crore for SIDBI
which will be available to support incremental lending, either
directly to SMEs.
An amount of Rs.1400 crore was made to promote textile.
 Consumer durables were made cheaper by reducing taxes on
inputs.
Export duty on iron ore fines was eliminated and on lumps was
reduced from 15% to 5%.
• Government issued bonds worth Rs 4,000 cr as fertilizer subsidy
to compensate companies for selling at subsidised rates

 
The government also bailed out India's cash strapped public
sector airline Air India by pumping in ` 2,500 cr in liquidity into
National Aviation Company of India(NACIL) which runs Air
India.

 Exporters who have purchased export credit protection were

given an additional dole-out from the government over and above
the cover they have already bought.

Government announced revival package to bail out textile

industry reeling under world economic meltdown. The Union
government has allocated some Rs1,400 crore to clear a backlog in
its Technology Upgradation Fund Scheme (Tufs), aimed at
The overall mood of the industry looks promising with growth at 10.6 per cent
for the five month period, April-August 2010.

8 of the 17 industry segments were seen to surpass the growth rate during the
first five months of FY 11 as compared to growth observed in previous year.
Confidence of the foreign investors in the Indian stock market has increased
which is evident from the swing between 19-20k in Sensex and the Nifty has
moved between 5-6 k.
•Total merchandise trade from April – August FY11 stood at USD 227 billion
compared to the total trade of USD 171.9 billion in the corresponding period of
trade the previous year.
•One area of concern for the government is the flow of FDI into the country
which is less than last fiscal.
•The growth in IIP for the period April to August 2010-11 stood at 10.6 percent
and this was higher than the growth posted for the same period in the previous
fiscal
 Growth of Industry: Recent Trends (%)
Weights Aug(09) Aug(10)

INDUSTRY 100 10.6 5.6

Mining 10.2 11.0 7.0

Manufacturing 79.4 10.6 5.9

Electricity 10.5 10.6 1.0

Use based classification

Basic 35.6 7.7 3.7

Intermidate 26,.5 14.4 10.0

Capital 9.3 9.2 - 2.6

Consumer Goods 28.7 10.9 6.9

Consumer non durables 28.3 6.1 -1.2

consumer durables 5.4 24.7 26.5

• According to Amartya Sen, the Nobel
laureate in Economics, the present
recession in the global economy is more a
‘matter of psychology than economics’.

• “We have to get rid of the mindset, the

mindset of recession.”