1. Recession & its Impact on Indian Economy - B.V.Raghunandan, SVS College, Bantwal SDM College of Management, Mangalore. February 26, 2009

2. Recession: What it Means An economic situation of continuously declining demand resulting in dwindling business and industrial confidence

3. Characteristics of Recession

• Reducing Sales and profits

• Increasing Unemployment

• Hesitation of New Investment

• Reducing Government Revenue

• Gold replacing Dollar as Reserve Currency

• Risk free Investments

• Larger Holding of Cash by Institutions

• Lesser FII

• Basic Commodities

• Expectation of Intervention by Government

4. Role of Government

• Passive upto 1929-32

• Keynesian Economics

• WTO against any Government Role

• In 2009, no voice of discontent about Government Intervention

• Nationalisation which was a dirty word in Liberalisation has become very much relevant even in the USA

5. Genesis of A Recession

• Consequence of a Hyper Industrial Activity

• Very High Level of Speculation

• Huge Turnover in Derivatives

• Real Estate Boom and the Speculation

• Central Banks Efforts in Contraction of Credit

6. US Recession

• Collateralised Debt Obligations (CDOs): Started in 1970s by packaging mortgages and selling them as CDOs

• Mortgage Backed Securities(MBSs): In 1983, Larry Fink of First Boston Corporation pioneers MBSs by dividing mortgages on the basis of Risk. Interest varied with Risk. Toxic Debt gave highest Rate of Interest

7. US Recession (contd)

• 1990s- Supreme success of MBSs put a lot of money with Banks & Mortgage Houses

• Lenders lower interest rates to 100% sub-prime mortgages. Rising house prices gave a false sense of security in case of defaulters

• Credit Default Swaps (CDSs): In 1997, Blythe Masters of JP Morgan Chase invented CDS, whereby the buyer paid a premium to seller to protect the buyer against default

8. US Recession.contd

• Shadow Banking System: Swaps cover mortgages, business loans, credit card debt and student loans

• Transactions through e-mails by speculators, insurance companies, hedge funds and pension funds worldwide

• 2000-03-Alan Greenspan cut Federal Fund Rates from 6% to 1%

9. US Recession.contd

• 2004: Government Sponsored lenders Fannie Mae, Ginnie Mae and Freddie Mac have mortgages that are hugely sub-prime

• 2005: Housing Boom-80% of lending is in Shadow Banking

• 2006: Housing Markets begin to collapse

• 2007-08: Banks start failing worldwide

10.

11. Recession Then & Now

• Government's Determination for Intervention

• International Financial Bodies Determination to Help

• Central Banks Close Monitoring

• Huge Funds Waiting for Deployment

• Third World Countries Less Affected by Recession

12. India & Recession

• Export Oriented Units getting Affected

• Reduced FDI & FII Activity

• Lesser Revenue to the Government

• Lesser Foreign Exchange Reserves

• Dull Organised Markets

• Lackluster Employment Markets

• RBIs Close Watch

13. Beneficial Impact on India

• Stoppage of the Mad Spree of Westernisation

• Recognition of a Bigger Role to Government

• Questioning the Utility of Derivatives

• Domestic Industries are being Explored by Export Oriented Units

• Lop sided Development is getting Corrected

• Managerial Remuneration is being Revisited

14. An Agenda for Management Students

• Be an Entrepreneur

• Follow Blue Ocean Strategy

• Develop a Socially Relevant Business

• Consider CSR to be far more important than profit or Efficiency

• Join Government Departments connected directly with Business & Industry

15. THANK YOU