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Recession India

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Recession India Powered By Docstoc
					a economic trend

Before, understanding “Recession”, we need to understand the market economy;
A] TWO STAGES OF MARKET ECONOMY

B] TWO FACTORS OF MARKET; - DEMAND & SUPPLY

TWO STAGES OF MARKET ECONOMY

Growing Market Economy

Declining Market Economy

Growing Market Economy Before January2008

Starting Point = Willingness to buy

Declining Market Economy After January 2008

TWO FACTORS OF MARKET; - DEMAND & SUPPLY
Producer wants his demand always to be high Consumer wants his buying cost always to be low
Actually, Demand is the price at which consumer is ready to buy and producer is ready to sell; Usually, we think; Demand = Quantity But, here Demand = Price; This is because, Price decides the Quantity of Sales; Competitive Price = More Demand; In competitive Price = Less Demand;

Producer Price Consumer Price

What is Recession?
Recession is the economy shrinking for two consecutive quarters (=6 months) with a decrease in the GDP (=Gross Domestic Product) GDP = Value of all the reported goods and services produced by the people operating in the country
GDP = MONEY VALUE OF {C + I + G + (X – M)} C = Consumables, I = Gross Investments, G = Government Spending, X = Exports, M = Imports

What is GDP?
GDP is a good indicator of economy; Other indicators could be; -Unemployment Rate -Consumption Rate -Actual Personal Income -Etc.. If GDP is growing, then market is growing due to increased demand; Note: If the recession continues for next quarter, (>6 months) then we go through “DEPRESSION” Economy;

D] What is a Business Cycle?

What goes up; Has to come down;

Growing economy has to come down if the production rate of goods & services was more than the actual consumption;

Why Recession happens?

E1] OVER PRODUCTION

E2] LOW CONFIDENCE LEVEL

Why Recession happens?
E1] OVER PRODUCTION
PSEUDO DEMAND
ACTUAL NEED WAS NOT THERE; WRONG PROJECTIONS

A situation in which the supply exceeds the nation’s ability to consume what has been produced;

Supply > Demand
COMPANIES PRODUCED MORE

Why Recession happens?
E2] LOW CONFIDENCE LEVEL

E2.1] Word of mouth

E2.2] Assignable Cause

Word of mouth
Low Confidence Level of Millions of consumers and producers after they hear many job cuts, Demand coming down, Companies’ bankruptcy, etc

Producers do not stock materials, they reduce their productions, gets into the cost reduction activities, worried About the profitability, etc…

Consumers are fearing that they may lose their jobs; So, they have less confidence to spend money and buy goods; This will result in reduction in demand in the market; Consumers start saving money instead of spending money; This is a downward spiral in the economy;

Bomb Blasts in Several States of INDIA in 2008 Created fear in people

Assignable Cause Bad Incidences Happening

People cancelled their travel plans Resulted in low occupancy rates
Airlines & Hotel Industries badly hit Airline & Hotel Industries offered discounts, gift coupons, to attract people

But, still, no improvement in occupancy rate Airline & Hotel Industries started “Cost Reduction” activities
CONTINUED IN NEXT SLIDE

So, you can see how the hit on Airline and Hotel industries can affect “Un-related” industries in the end;

One industry can hit many other industries when the confidence level of millions of consumers & producers drastically comes down;

How to come out of recession?
It is unhealthy for any nation to be in Recession; So, Government will take certain countermeasures to eliminate or reduce the Effect of recession for turnaround;
Important Point: Today, it is a market Economy

Producers; Can produce and sell at their prices

Consumers; Can decide to buy or not;

Both Producers and Consumers are free to act; Not a forced action

How to come out of recession?
Hence, Government does not have direct control on Producers’ & the Consumers’ behavior; But, they can influence millions of Producers & Consumers with Government’s policies; Government has 2 plans

Fiscal Policies (By Govt.) Government influences the economy by changing how it (Government) spends and collects money

Monetary Policies (By RBI) RBI manipulates the available supply of money in the country

How to come out of recession?
Fiscal Policies 1] Tax cuts for businesses or for individuals Government influences the economy by changing how it (Government) spends and collects money More money available for spending

2] More Spending by Govt. to create jobs
3] Automatic fiscal policy; Unemployment Insurance

Individuals get salary and spend money Some income to unemployed people to spend

Demand picks up; Market can recover;

How to come out of recession?
Monetary Policies 1] Reduce reserve ratio What is Reserve Ratio?
Each bank has to keep a high % of their assets in RBI (Reserve Bank of India). These assets do not earn any interest to banks. This money kept in RBI is called “Reserves”; RBI sets certain ratio of this reserves and it is called “Reserve Ratio” Government manipulates the available supply of money in the country More money available for bank to give loans

Demand picks up; Market can recover;

WOW!!!!!!!!
RBI’s Power or Government’s Power is double-edged sword; Sometimes, their policies to recover from recession can be counter-productive and it may further worsen the situation;
If we advise our people to save money, then, the multiplication effect is that the demand will not pickup and recession will continue; Very peculiar!!!!! But, We are not misguiding you; Just think from a macro level, if everybody in the country stops spending, what will happen?

Nation’s recession is controlled by the actions of everybody living in that country;

WOW!!!!!!!!
Most of the developing Economies like China, India; Currently, Slow Down Stage; Not yet in Recession GDP Growth Rate Down; But, Still expected to be Around 6% in India

Most of the developed Economies like US, Japan, Germany, etc

Currently, in Recession

GDP Growth Rate Negative;

HOPING THIS TIME RECESSION VANISHES SOON SO THAT INDIA GETS BACK TO ITS STRONGER GDP GROWTH RATE OF 8% TO 10% (THOUGH THE EXPERTS SAY IT WILL LAST TILLQ3 OF 2009)


				
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