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PROJECT REPORT
ON
IMPACT OF RECESSION ON FRESHERS IN CORPORATE
WORLD
Submitted in partial fulfillment for the award of degree of
Master of Business Administration
SESSION: 2008 2010
Submitted By:
Hariom
MBA 4 thSem
426/MBA/08
PDM COLLEGE OF ENGINEERING, BAHADURGARH
AFFILIATED TO MAHARSHI DAYANAND UNIVERSITY, ROHTAK
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DECLARATION
I, Hariom Roll No. 426 class MBA 4th
SEM of PDM college of Engineering, Bahadurgarh, herebydeclare that the project entitled IMPACT OF RECESSION ON FRESHERS 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 f easible 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
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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. NanditaRathee, 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 theevery 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 andall
the persons who have helped me in completing my project report.
Hariom
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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 differentCountries
Effect of Recession On differentIndustries
7 Data Analysis & Interpretation
8 Findings
9 Suggestions
10 Limitations
11 Conclusion
BibliographyAnnexure
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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 worlds 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 hasfallen 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. Its 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 countrys 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. Theimpact 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
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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.
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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
Indias 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.
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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.
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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 1980s and 1990-91 recessions. Lets observe the policy mix taken by the
economies like US and Europeans at such situation.
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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 onwardsThe 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 givingwidespread 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
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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 byaffecting 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.
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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.
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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.
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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 venturesand 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 1930s), the risk may be worth taking.
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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
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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.
Indias growth is based essentially on investing its own savings, and so is relatively insulated
from global finance and fashions. Indias 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 demandafloat. 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
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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 AmitMitra 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 J NNURM 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.
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Hillary Clintons Verdict on the Outsourcing Industry
ShiladityaLahiri, Research Analyst, EmPower ResearchMay 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 bedifficult to stop.
Hillary Clinton has always been in the limelight when it has came to her opinion about theoutsourcing industry. Four years ago, she brought Tata Consultancy Services to BuffaloCity amid great fanfare and promises that its local operation might eventually employ up to100 people. But the India-based company, one of the worlds largest outsourcing consultants,currently employs only about 10 people locally. This led to a variety of opinions beinggenerated across communities.
The main lobbying organization for the Indian-American community, USINPAC, cited theTata deal as one of Clinton's top three achievements as a senator -- and evidence of aturnabout, in its view, from her past criticism of outsourcing. Whereas in the year 2005, theInformation Technology Professionals Association of America (ITPAA), an advocacy group
based in Wilmington, Delaware representing professionals in the high-tech field handed outits first Weasel Award of 2005 to Senator Hillary Rodham Clinton marking her betrayaltowards the American people.
On April 2, 2008, Hillary Clinton said that she wanted to insource more jobs and stopgiving tax credits to companies that send jobs overseas. The New York senator andDemocratic presidential hopeful unveiled the $7 billion tax incentive and investment planduring 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 theyview as unfair competition.America is not just a marketplace to get afoothold in. It is a place to make lasting investments that will create jobs and economicgrowth for everyone. Hillary Clinton.
Clinton proposed expanding tax benefits for research and development by increasing theexisting 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 todefer paying taxes on income earned by foreign subsidiaries, and the creation of 15innovation and research clusters across the country.
She also expressed her intentions of creating a manufacturing advanced research projectsagency, and a green manufacturing extension partnership. The panel members includedPittsburgh Life Sciences Greenhouse President and CEO John Manzetti, who told Clinton
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that creating more companies was the key to retaining talent in the area. He paraphrased awell-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 Clintons views onoffshoring have grown in recent months. While Clinton has fought to end legal loopholes thatgive tax breaks to companies that offshore jobs, she also has acknowledged that offshoringwill be difficult to stop and has continued to urge Indian companies to invest in the UnitedStates.
As the election fervor catches on, the outsourcing issue has once again been resurrected to ahot campaign issue. Democrats like Clinton who have to aggressively court special interestslike labor unions - that vehemently oppose outsourcing - have to tread carefully and try to
balance their support for free trade and globalization
SriharshaVenkataYellamraju, Sr Research Analyst, EmPower ResearchMay 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 onIndian outsourcing industry.
The issue of offshoring and outsourcing has stirred a hornets nest when Barrack Obamalaunched 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 USrecession 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 Clintons Verdict on the OutsourcingIndustry" and "Barack Obamas 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 expectmore business due to the situation in the US or is it the time to take appropriate measures tocounter the possible slump in the business growth?
According to Julio Ramirez, globalization and outsourcing practice leader at the HackettGroup, many companies are hitting the pause switch on their globalization efforts. And withthe transformational projects on hold the outsourcing companies will see less of the requestfor 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 atEverest Research Institute, as buyers become frugal in determining scope of contract.
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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 inIndia arent helping much. Rupee in fact gained about 11% against the dollar betweenJanuary and December 2007, which resulted in higher costs for the clients and lower earningsfor 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 incrementsto single digits in the next couple of years to control the costs. The difficulty with thisoption is attrition and it needs to be seen how the outsourcing companies would now managethe already high rates.
US recession, however, has some positive effects too on the industry. Hundreds of thousandsof small medium enterprises (SMEs) are waking up to benefits of offshore outsourcingindustry. Times of India states that SME deals from the US would be around $8 billion byMarch 2009 and $11 billion by March 2010 from the current levels of about $7 billion. Alsothe slowing US economy could push the outsourcing up to new levels to low-costdestinations 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 openingtheir offices in countries like Philippines, Singapore, Malaysia, Sri Lanka and a few eastEuropean countries. Companies are also looking for new client outside the US particularlyin the English speaking countries of the UK, Australia, New Zealand and Canada.
Offshoring over the long term looks promising. Business Line reports that vendors areexpecting the same recession-related factors to fuel increased demand for outsourcing by theend 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 theDemocratic Senator from Illinois, his candidature was welcomed across the country. Hefeatured in the national limelight after his outstanding speech at the Democratic NationalConvention 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 descentcan win a general election.
Issues of globalization and outsourcing have never been chosen by American politicians toshow leadership. Doing so would mean challenging global financial firms, who apparently
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are the biggest campaign financiers. On the contrary, Obama considered anti-outsourcing asone of the key issues for his campaign.
Playing the anti-outsourcing card Obama believes that, while the United States cannot retreatfrom 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 givethose 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, Obamasaid that he would ensure environmental, safety and labor standards in every pact that the USsigns.
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 doesnot care about lost American jobs. The Off-the-record memo by Obama quoted that in2005, while on a trip to India, Hillary Clinton told a meeting of industrialists that there is noway to legislate against reality and that outsourcing will continue.
An internal memo by Obama campaign in June, 2007 revealed that Clintons ties to wealthyIndian businesspeople had made her favor outsourcing. The memo mentioned the tie betweenClinton 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 andhe has vociferously supported the practice.
Obama believes that the global integration of the US economy is there to stay. But he wouldfight for American workers who lost their jobs. Obama refutes tax relief to companies thatship job overseas but said that education system must improve to check the outsourcing trend.
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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.
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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
ExploratoryResearch Design- The main purpose of formulating a problem for more precise
investigation or of developing the work hypothesis from an operation part of view.
DescriptiveResearch 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-testingResearch Design- Where the researcher tests the hypothesis of casual relationship
between variables.
In this project Descriptive and Exploratory research design is used.
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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.
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y Like observation method, questionnaire.
y 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
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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
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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.
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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 1940s.
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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 acceleratedto 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 deficitat 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
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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 equitymarkets 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
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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 beencoming 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 rippleeffect 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.
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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
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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 NASDAQs 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.
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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 MichaelMussa 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 asinterference 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
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processes taking place in the global economy. But it seems the impression is starting to wear
a little thineven 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 bean 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 andthe 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 industryand above all in high-tech
investmentmeans 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 thananticipated 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
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account deficits of the size presently experienced by the USmore than $430 billion,
equivalent to around 4.5 percent of gross domestic producthave 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 everyindustrial 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
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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 subsequenteconomic 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'.
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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
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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 stimulusmay 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 1930s), the risk may be worth taking.
Corrective Steps to Check Recession
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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 AmitMitra 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 J NNURM 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, its
very likely that in India too the rate of contraction of services will be less than that of the
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manufacturing sector. And since services account for 60% of Indias 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
industrys 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
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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
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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 forayWith 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