ASSIGNMENT OF

INTERNATIONAL BUSINESS

ON

HOW TO TACKEL RECESSION

Submitted to: Submitted by:Prof. VIJESH JAIN GROUP-5

RECESSION

Introduction

The fear of a recession looms over the United States. And as the clich goes, whenever the US

sneezes, the world catches a cold. This is evident from the way the Indian markets crashed

taking a cue from a probable recession in the US and a global economic slowdown.

Weakening of the American economy is bad news, not just for India, but for the rest of the

world too.

So what is a recession?

A recession is a decline in a country's gross domestic product (GDP) growth for two or more

consecutive quarters of a year. A recession is also preceded by several quarters of slowing

down.

What causes it?

An economy which grows over a period of time tends to slow down the growth as a part of

the normal economic cycle. An economy typically expands for 6-10 years and tends to go

into a recession for about six months to 2 years.

A recession normally takes place when consumers lose confidence in the growth of the

economy and spend less.

This leads to a decreased demand for goods and services, which in turn leads to a decrease in

production, lay-offs and a sharp rise in unemployment.

Investors spend less as they fear stocks values will fall and thus stock markets fall on

negative sentiment.

"The risk of a recession in the US in 2008 is high and rising. If the US goes into recession,

you are going to feel it in Asia; you are going to feel it in India,"

Eastern Asia and China would be the biggest victims of a US recession. The subprime crisis

in the US would serve as a wake up call for central banks around the world.

LIST OF MAJOR RECESSIONS TILL NOW:-

Recession Name

Recession Year

Time Taken

Cause & Impact

Great Depression

1929–1939 10 years

Stock markets crashed worldwide, and a banking collapse took place in the United States. This sparked a global downturn, including a second, more minor recession in the United States, the Recession of 1937.

1937 Oil Recession

. 1973–1975 2 years

A quadrupling of oil prices by OPEC coupled with high government spending due to the Vietnam War lead to stagflation in the United States

Early 1980’s Recession

1980–1982 2 years

The Iranian Revolution sharply increased the price of oil around the world in 1979, causing the 1979 energy crisis. This was caused by the new regime in power in Iran, which exported oil at inconsistent intervals and at a lower volume, forcing prices to go up. Tight monetary policy in the United States to control inflation lead to another recession. The changes were made largely because of inflation that was carried over from the previous decade due to the 1973 oil crisis and the 1979 energy crisis.

Early 1990’s Recession

1990–1991 1 yearIndustrial production and manufacturing-trade sales decreased in early 1991.

Early 2000’s Recession

2001–2003 2 years

The collapse of the dot-com bubble, the September 11th attacks, and accounting scandals contributed to a relatively mild contraction in the North American economy.

Early 2008’s Recession

2008-so on ContinuingLet see what can be the impact of the 2008 recession of US market on World.

Impact of an American Recession on India:-

Indian companies have major outsourcing deals from the US. India's exports to the US have also grown substantially over the years. The India economy is likely to lose between 1 to 2 percentage

points in GDP growth in the next fiscal year. Indian companies with big tickets deals in the US would see their profit margins shrinking.

The worries for exporters will grow as rupee strengthens further against the dollar. But experts note that the long-term prospects for India are stable. A weak dollar could bring more foreign money to Indian markets. Oil may get cheaper brining down inflation. A recession could bring down oil prices to $70.

The whole of Asia would be hit by a recession as it depends on the US economy. Even though domestic demand and diversification of trade in the Asian region will partly counter any drop in the US demand, one simply can't escape a downturn in the world's largest economy. The US economy accounts for 30 per cent of the world's GDP.

Says Sudip Bandyopadhyay, director and CEO, Reliance Money: "In the globalised world, complete decoupling is impossible. But India may remain relatively less affected by adverse global events." In fact, many small and medium companies have already started developing trade ties with China and European countries to ward off big losses.

Manish Sonthalia, head, equity, Motilal Oswal Securities, says if the US economy contracts much more than anticipated, the whole world's GDP growth-which is estimated at 3.7 per cent by the IMF-will contract, and India would be no exception.

The only silver lining is that the recession will happen slowly, probably in six months or so. As of now, IT and IT-enabled services, textiles, jewellery, handicrafts and leather segments will suffer losses because of their trade link. Certain sections of commodities could face sharp impact due to the volatile nature of these sectors. C.J. George, managing director, Geojit Financial Services, says profits of lots of re-export firms may be affected. Countries like China import commodities from India, do some value-addition and then export them to the US.

The IT sector will be the worst hit as 75 per cent of its revenues come from the US. Low demand for services may force most Indian Fortune 500 companies to slash their IT budgets. Zinnov Consulting, a research and offshore advisory, says that besides companies from ITeS and BPO, automotive components will be affected. During a full recession, US companies in health care, financial services and all consumer demand driven firms are likely to cut down on their spending. Among other sectors, manufacturing and financial institutions are moderately vulnerable. If the service sector takes a serious hit, India may have to revise its GDP to about 8 to 8.5 per cent or even less.

Lokendra Tomar, senior vice-president, Integreon, a BPO firm, says the US recession is likely to have a dual impact on the outsourcing industry. Appreciating rupee along with poor performance of US companies (law firms, investment banks and media houses) will affect the bottom line of the oursourcing industry. Small BPOs, which are operating at a net margin of 7-8 per cent, will find it difficult to survive.

According to Dharmakirti Joshi, director and principal economist of CRISIL, along and severe recession will seriously affect the portfolio and fixed investment flows. Corporates will also suffer from volatility in foreign exchange rates. The export sector will have to devise new strategies to enhance productivity.

Steps for tackling the world recession for Indian export :-

Steps by Govt.

Make currency for export oriented:-

Depreciate the value of the Indian rupees against the

world’s major currencies to make Indian export cheaper for

them.

Increase in tax sops for exporters

Increase in export incentive programs like drawback duty.

Easy Availability of Fund:-

Govt. should ensure the easy availability of fund for

exporters at lowest cost, which is in India the cost of

acquiring fund, is very high.

Provide Infrastructure Facility:-

Govt. should provide good infrastructure facility to the

exporter like logistic & transport facility or if possible,

Govt. could provide these facilities free of cost to boost

export.

Create Environment for R & D and Innovation:-

Govt. should create environment in such a manner that can

boost to R&D and Innovation work in India, so can it can

boost the demand for Indian product especially

technological product which is right now in very low level.

Encourage and give subsidies to exporters to participate in world

trade fairs like textile fair in Germany.

Market of Indian product:-

Govt. should boost the marketing campaign overseas for

Indian product and services. Indian marketing campaign

should focus on quality product and services. Marketing

should in such a way that overseas importer always see

Indian product is always quality wise good.

Steps by exporters

Exporter should come with a Joint Business:-

Indian exporters who mostly are small and medium level

exporters (especially in textile, handicraft & leather industry)

could come together to joint hand to create value chain. It

helps them:

It will make possible for them to invest on

marketing which impossible individually.

It will make viable to them invest in expansion of

their operation capacity through which they can

produce goods in bulk and able to reduce per unit

cost

Focus on Emerging Economies:-

Make focus on world’s emerging countries like BRIC

countries, European nation and West African countries

because they have purchasing power. In West Africa, goods

at departmental stores are sold at the rate 5 times than

Indian price and Indian goods are not exported to several

countries in West Africa. It is an excellent opportunity for

our exporters.

Focus to Reducing Operating Cost: -

Exporter should focus on develop their services and

products in such a way that their service help to reduce the

operation cost. So importers can use our service to bring

down their product cheaper and people always concerned

with cheaper good in recession time.

Exporter can focus on domestically demand and emerging

economies that can use services in major way.

Focus on Elite Class:-

Slow downing in the economy does not much effect on

some segment of society especially elite class and they

always concern of good quality of product. Indian

exporters should try to increase the quality of their product

and target that segment.

Marketing of core Competency:-

As Indian medical facilities are very good and cheapest in

the world, so in this area marketing should be more

aggressive so people from developed country can come

here and can avail cheap but a good medical facility

alongwith the marketing of herbal medicines, ayurvedic

treatment, coupled with yoga and meditation.

Investment on R & D and Innovation:-

Exporters should focus on innovation it is the only tool,

which can bring demand for good. Indian exporters should

focus on innovation instead of imitation, for which Indians

are famous.

Try to build up their own Value Chain:-

Indian exporter should try to build up their own value

chain like their own distribution channel, own marketing

of their product, for building their own brand (like

Japanese Company) so that Indian exporter can provide

product value for money which through overseas agent

could not possible because they charge more.

RECESSION IS A BOON OR CURSE FOR INDIA

Recession Could Be Beneficial for India. In the recession, it will lead lower demand of basic commodities like crude Oil, demand for the Steel, Cement, Food Grain, which is the basic reason for the increase in the input cost of the world products. Of these commodities price has been doubled or tripled in the recent past which is the one of the important reason for the inflations.

Due to lower demand of these commodity’s price would goes down. It will help in slowing down of the Inflation of India by which it will lead to increase in demand of our product by our people. Because the GDP of India increase due to high population not because of International Export by which it can help in increase in Indian Economy through out the world.

So as a conclusion we can say that Indian Economy mostly depend upon the population of India and their purchasing power (which is the 4 t h

largest Economy in the world if we calculate according to purchasing power parity), that mean the recession taken place anywhere through out the world (whether in US or in any country), it can’t affect the Indian Economy.