hariom new project

8/9/2019 Hariom New Project

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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

hariom new project

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