u s economic recession & its impact on indian economy

8/14/2019 U S Economic Recession & its impact on Indian Economy

1/32

PROJECT REPORT

ON

US ECONOMIC RECESSION

AND

ITS IMPACT ON INDIAN ECONOMY

Submitted to:

Mr. P.P. Singh

Faculty, P.C.T.E. Submitted by:

Sanjeev Kr.Singh

MBA 2C

1


2/32

WHAT IS ECONOMIC RECESSION

The word recession means reduction of a countrys gross domestic product (GDP) for at least

two quarters. United States-based National Bureau of Economic Research (NBER) defines

economic recession as

A significant decline in the economic activity spread across the country, lasting more than a

few months, normally visible in real GDP growth, real personal income, employment (non-farm

payrolls), industrial production, and wholesale-retail sales.

What Causes Economic Recession

An economy which grows over a period of time tends to slow down the growth as a part ofthe normal economic cycle. An economy typically expands for 6-10 years and tends to go

into a recession for about six months to 2 years.

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

and spend less. This leads to a decreased demand for goods and services, which in turn leads to a

decrease in production, lay-offs and a sharp rise in unemployment. Investors spend less as they

fear stocks values will fall and thus stock markets fall on negative sentiment.

Sub-Prime BorrowerSubprime refers to a borrower that is not 'prime'. These are borrowers who might be less likely to

repay a loan. Subprime borrowers may be classified as subprime because of:

Bad credit or lack of history

Low income or poor debt to income ratios

Large loans relative to the securing property

Maxed out credit cards

Referring to somebody as subprime is similar to saying they have less than perfect credit.

2


3/32

Sub-Prime Boom

In 2007 financial crisis that started in the United States of America from the high number of

defaulting borrowers with subprime mortgages The elevated risks that financial institutions were

taking with subprime mortgages in the USA began to create problems towards the end of 2006.

Borrowers began to default on their loans in higher numbers, which created a global credit crisis.

Central banks were forced to inject money into financial markets, more than one hundred

subprime lenders in the United States collapsed, and global economic growth was expected to

slow.

Problems in the subprime market began to arise in the United States after a real estate boom

prompted financial companies to aggressively market subprime mortgages to borrowers that didnot-have-the-capacity-to-repay-the-loan. While the subprime mortgage meltdown was mostly an

American problem, financial markets around the world have been affected by it.

Reason behind Subprime Crisis

In the years leading up to the start of the crisis in 2007, significant amounts of foreign money

flowed into the U.S. from fast-growing economies in Asia and oil-producing countries. This

inflow of funds made it easier for the Federal Reserve to keep interest rates in the United States

too low from 20022006 which contributed to easy credit conditions, leading to the United

States housing bubble. Loans of various types (e.g., mortgage, credit card, and auto) were easy to

obtain and consumers assumed an unprecedented debt load. As part of the housing and credit

booms, the amount of financial agreements called mortgage-backed securities (MBS) and

collateralized debt obligations (CDO), which derived their value from mortgage payments and

housing prices, greatly increased.

Such financial innovation enabled institutions and investors around the world to invest in the

U.S. housing market. As housing prices declined, major global financial institutions that had

borrowed and invested heavily in subprime MBS reported significant losses. Falling prices also

resulted in homes worth less than the mortgage loan, providing a financial incentive to enter

foreclosure. The ongoing foreclosure epidemic that began in late 2006 in the U.S. continues to

drain wealth from consumers and erodes the financial strength of banking institutions. Defaults

3


4/32

and losses on other loan types also increased significantly as the crisis expanded from the

housing market to other parts of the economy. Total losses are estimated in the trillions of U.S.

dollars globally.

Sub-Prime lending

Subprime refers to the credit quality of particular borrowers, who have weakened credit histories

and a greater risk of loan default than prime borrowers. The value of U.S. subprime mortgages

was estimated at $1.3 trillion as of March 2007 with over 7.5 million first-lien subprime

mortgages outstanding.

Major U.S. investment banks and government sponsored enterprises like Fannie Mae played an

important role in the expansion of higher-risk lending.

Role of new Financial Products

The ongoing development of financial products designed to achieve particular client objectives,

such as offsetting a particular risk exposure (such as the default of a borrower) or to assist with

obtaining financing. The adjustable-rate mortgage; the bundling of subprime mortgages into

mortgage-backed securities (MBS) or collateralized debt obligations (CDO) for sale to investors,

a type of securitization; and a form of credit insurance called credit default swaps(CDS). The

usage of these products expanded dramatically in the years leading up to the crisis. These

products vary in complexity and the ease with which they can be valued on the books of

financial institutions.

4


5/32

SLOWDOWN IN US ECONOMY

OVERVIEW OF US ECONOMY

Table 1.1SECTOR IN %

AGRICULTURE .9

INDUSTRY 20.6

SERVICES 78.5

Chart 1.1

The economy of USA is worlds largestnational economy. In 2008, at $ 13.8 trillion, accounts

for 21% of gross worlds GDP. US GDP is mainly governed by services sector which accounts

for 78.5 % followed by industrial sector which accounts for 20.6 % and then by the agriculturesector which only contributes nearly 1%.

Chart 1.2 US GDP GROWTH RATE (in %)

5


6/32

Real gross domestic product -- the output of goods and services produced by labor and property

located in the United States has decreased by 6.3 % in 1q of 2009 from 1.7 % in 2q of 2008.

Chart 1.3 United States Gross Domestic Product(in bn. $)

6


7/32

Chart 1.4 United States Industrial Production

Downturns in manufacturing, retail trade, and finance and insurance were the leading

contributors to the economic slowdown in 2008, as well as in the industrial production.

Chart 1.5 United States Exports (millions USD)

7


8/32

Chart 1.6United States Imports (in millions USD)

CHART 1.7 USA TRADE BALANCES (billion USD)

The gap between exports and imports fell to $339.3 billion at an annual pace from $386.5 billion.

Trade deficit was started increasing as the cost of oil went up to147$/barrel, because import cost

has increased as US is largest oil consumer. And also their export was falling. The gap increasedfour percent to $27 billion from $26 billion in May, which was the lowest level in almost a

decade.

8


9/32

CHART 1.8 United States Unemployment Rate

Nonfarm payroll employment continued to decline in Oct 09 and the unemployment rate waslittle changed at 10.2 percent. The number of unemployed persons was 15.5 million.

CHART 1.9 United States Consumer Confidences

Consumer confidence is a measure of the level of optimism consumers haveabout the performance of the economy. Generally consumer confidence is

high when the unemployment rate is low and GDP growth is high. Measures

of average consumer confidence can be useful indicators of how much

consumers are likely to spend.

9


10/32

2. INDIA AND THE FINANCIAL CRISIS

Overview of Indian Economy

The Indian economy had moved to a high growth phase during 2003 to 2008, but suffered a

major decline in 2008-09 on account of the global financial crisis. The factors responsible for

rapid expansion of the economy from 2003-2008: robust investment growth, high rate of

domestic savings, strong corporate performance and good tax buoyancy were largely undone by

the global financial and economic crisis in the second half of 2008-09.

The impact of the slowdown has been broad-based in nature. Growth in Industrial and

Agricultural sectors moderated significantly during the year. The services sector managed to

minimize the effects of the slowdown with a 9.5% growth (compared to 10.9% last year).

Merchandise exports grew by a mere 5.7% during 2008-09 as compared to a 26% growth during

last year. The outlook for the Indian economy continues to be subdued with recovery expected

only in the second half of 2009-10.

GRAPH 2.0: Composition of GDP by Industries in 2008-09

10


11/32

CHART 2.1 Gross Domestic Product (in %)

Gross Domestic Product (GDP) at current market prices has touched USD 1.217 trillion in

2008-09 as data released by the Central Statistical Organisation (CSO) of Gross Domestic

Product.GDP at factor cost at constant 1999-2000 prices grow at 6.7 % in2008-09. This

11


12/32

represents a deceleration from the high growth rates of 9.7% and 9.0%, respectively, in the

previous two years.

CHART 2.2 SECTORWISE GROWTH

Agricultural growth decelerated to 2.6% in 2008-09.

Manufacturing which grew at 8.2% in 2007-08, decelerated by about 4.1 percentage points

in 2008-09.

The Construction sector also slipped by about 3.6 percentage points to a 6.5% growth rate

in 2008-09.

CHART 2.3 Inflation

12


13/32

Within a span of seven months, the WPI came down from the high of August 2008 (12.8%) to

0.27% during the week ending March 14, 2009. The crash in commodity prices (especially crudeoil, metals and agricultural commodities) in the international markets has been largely

responsible for such a steep fall in inflation in the domestic economy.

CHART: 2.4 WPI & CPI

13


14/32

The Consumer Price Index (CPI-IW) has been relatively rigid as compared to the WPI. After aslight moderation in December 2008, it went back to its previous level (10.4 % in October

November 2008) in January 2009. The relative rigidity is on account of the higher weight of food

items (46%) in the index whose prices have remained relatively high.

GRAPH 2.5 Foreign Exchange Reserves

Chart 2.5 Index of Industrial Production

14


15/32

The industrial production came down to almost at level of zero percent. This was happen due to

sharp decline in consumer demand In USA and liquidity crisis in our own country. Industries like

Textiles, BPO, Automotive, Steel Production, IT, Jewellery, Construction suffered most.

CHART 2.6 FOREIGN DIRECT INVESTMENT (in Mn. $)

Despite the slowdown the FDI in 2008-09 has remain positive, but the percentage growth rate

came down to35.4% comparatively growth of last year of 135%.FDI has started declining after

Aug 2008,even though share market has crashed in Jan 08.As people has not belived that this

15


16/32

slowdown will convert in such a big crisis, After failing the biggest financial institutions in USA

Investment have started declining.

CHART 2.7 FII in India

The share market has stared crashing after reaching 22ooo,in Jan 2008.after July 08 foreign

investors started selling in the market, and in year 2008 near about Rs.36000 crore has been

withdrawn, but again after Apr 2009 foreign investors the benchmark indices rallied strongly in

the last three month on rising hopes of an economic recovery across the globe and encouraging

Q110 earnings from India.

16


17/32

CHART 2.8 BSE SHARE INDEX

CHART 2.9 CRUDE OIL PRICES

Crude oil prices were also responsible for world economic slowdown; it has reached at $147per barrel.

The inflation rate in India has risen over 12%, which also increases the cost of house hold goods the trade

deficit has widened after increasing the crude oil prices, as for purchasing oil, oil companies purchased

lots of dollar, which increase the dollar up to Rs. 52.

17


18/32

CHART 2.10 EXPORT, IMPORT (in bn. $)

CHART 2.11 % Growth in export and import

The sky touching crude oil prices has increased the balance of trade, as the India Import maximum

amount of crude oil that it uses, which result s in high import cost, as well as results in high inflation rate

of the country,. Due to economic crisis in the western countries Export has suffered a lot, as demand has

gone very low.

18


19/32

Reasons for fall of stock market

The first month of the financial year 08-09 proved to be a good one for investors with the month ending

on a positive note. The BSE sensex showed a gain of 10.5% to close at 17287 points. A combination of

firming global markets and technical factors like short covering were the main reasons for the up move in

the markets. Though inflation touched a high of 7.57% against 6.68% in march 2008 as a result RBI hiked

CRR by 50 bps to take the figure to 8%, still emergence of retail investors was also seen; a fact reinforced

by the strong movement in the mid-cap and small- cap index that rose 16% and 18% respectively.

So April was the last month to close positive. Then after nobody saw a stable sensex even. Sometimes it

surged by 600+ points, but very next day it plunged by some 800 odd points and this story is still

continuing. Every prediction, every forecasting has failed. The sensex is dancing on the music of lifetime

high inflation rates, historic crude prices, tightening RBI policies, weak industrial production data,

political uncertainties and obviously the sentiments of domestic as well as FIIs. The only relief came in

the form of weakening Indian rupees which enlightened the IT sector and most recently the UPA gaining

vote of confidence. Presently it is revolving around the figures of 14000 and no one knows what next?

The 30-share BSE Sensex fell 117.89 points or 0.67% at 17,373.01 on Tuesday, 6 May 2008. The key

benchmark indices ended lower as investors resorted to profit booking due to lack of positive triggers in

the market. On 30th May an imminent hike in domestic retail fuel prices due to soaring crude oil prices

weighed on the market last week. Foreign institutional investors sold close to Rs 2204 crore in the first

three trading sessions of the week which accentuated the downfall. However better than expected Q4

gross domestic product figures provided some relief to the bourses on Friday. IT stocks gained on

slipping rupee. BSE Sensex rose in two out of five trading sessions. In May, Indian inflation stood at

8.2%.

The market declined sharply as a hike in fuel prices by about 10% announced by the Union

government on Wednesday, 4 June 2008, triggered possibility of a surge in inflation to double

digit level. The BSE Sensex declined 843.39 points or 5.14% to 15,572.18 in the week ended 6

June 2008. The S&P CNX Nifty fell 242.3 points or 4.97% to 4627.80 in the week.

On 6 June 2008, local benchmark indices underperformed their global peers, hit by rumours that

the Reserve Bank of India (RBI) may hike cash reserve ratio (CRR) orinterest rate later in the

day to tame runaway inflation. The 30-share BSE Sensex declined 197.54 points or 1.25% to

settle at 15,572.18.

19


20/32

On 9th June 2008, Bombays Sensex index closed 506.08 points down at 15,066.10, having

earlier fallen 4.4% and slipped below 15,000 for the first time since March . Oil prices surged to

record levels, fanning fears that they will keep climbing and hurt world growth.

Central banks across the globe warned that interest rates may have to rise as they look to keep

inflation under control, despite the fact that economic growth is slowing in key nations such as

the US and UK.

On the week ending 27th June 2008 Sensex declined 769.07 points or 5.28% to 13,802.22. The S&P CNX

Nifty lost 210.90 points or 4.85% to 4136.65 in the week. Equities extended losses for the fifth straight

day on 24 June 2008 with the barometer index BSE Sensex falling below the psychologically important

14,000 mark for the first time in 10 months since late August 2007. On 25 June 2008, equities staged a

solid rebound after touching fresh calendar 2008 lows in early trade. The initial jolt was caused by the

Reserve Bank of India's move to hike the key lending rate. A setback to stocks in Asia and US, sharp

spurt in crude oil prices and political uncertainty due to Indo-US nuclear deal rattled bourses on 27 June

2008.

On July 15th 2008, Indian shares fell 4.9 per cent to their lowest close in 15 months, joining a world

equities rout as investors dumped financials on concerns about the fallout from worsening global credit

turmoil. Although Indian banks have no direct exposure to the US subprime mortgage sector, the global

financial sector turmoil impacts sentiment in the local market and raises worries of more withdrawals by

foreign funds.

An 800+ point surge was experienced in the market on the day following UPA gaining vote of confidence

but the very next day market couldnt maintain the momentum and since then its in a doldrums position.

20


21/32

IMPACT OF RECESSION

In USA

The United States entered 2008 during a housing market correction, a subprime mortgage

crisis and a declining dollar value

In February, 63,000 jobs were lost, a 5-year record.

In September, 159,000 jobs were lost, bringing the monthly average to 84,000 per month

from

January to September of 2008.

On September 5, 2008, the United States Department of Labor issued a report that its

unemployment rate rose to 6.1%, the highest in five years

The defaults on sub-prime mortgages (home loan defaults) have led to a major crisis in

the US.

Sub-prime is a high risk debt offered to people with poor credit worthiness or unstable

incomes. Major Banks have landed in trouble after people could not pay back loans.

The housing market soared on the back of easy availability of loans.

The realty sector boomed but could not sustain the momentum for long, and it collapsed

under the gargantuan weight of crippling loan defaults

Foreclosures spread like wildfire putting the US economy on shaky ground. This, coupledwith rising oil prices at $100 a barrel, slowed down the growth of the economy.

Liquidity Crisis

In early July, depositors at the Los Angeles offices of Indy Mac Bank frantically lined up

in the street to withdraw their money.

On July 11, Indy Mac - the largest mortgage lender in the US - was seized by federal

regulators

The mortgage lender succumbed to the pressures of tighter credit, tumbling home prices

and rising foreclosures.

During the weekend of September 1314, Lehman Brothers declared bankruptcy after

failing to find a buyer

21


22/32

Bank of America agreed to purchase Merrill Lynch; the insurance company AIG sought a

bridge loan from the Federal Reserve

And a consortium of 10 banks created an emergency fund of at least $70 billion to deal

with the

Effects of Lehman's closure,The biggest bank failure in history occurred on September 25

when JP Morgan Chase agreed to purchase the banking assets of Washington Mutual

The year 2008 as of September 17 has seen 81 public corporations file for bankruptcy in

the United States, already higher than the 78 in 2007.

Lehman Brothers being the largest bankruptcy in U.S. history also makes 2008 a record

year in terms of assets with Lehman's $691 billion in assets all past annual totals.

The year also saw the ninth biggest bankruptcy with the failure of Indy Mac Bank

On September 29, Citigroup beat out Wells Fargo to acquire the ailing Wachovia's assets

will pay $1 a share, or about $2.2 billion.

In addition, the FDIC said that the agency would absorb the company's losses above $42

billion; in exchange they would receive $12 billion in preferred stock and warrants from

Citigroup in return for assuming that risk

Details emerge of a $700 billion plan to bail out firms burdened with bad debt.

22


23/32

IMPACT ON INDIA

UNEMPLOYMENT

Table: 5.0:Sector-wise Estimated Job-Losses during 2008-09 in

India

(Employment Figures are in Lakh)

Sector 2008-09 (%) Growth in Estimated Empl. Potential Job-loss

GDP Productivity Empl. 2007-08 2008-09 Empl. 2008-09

Agriculture -0.10 1.43 -1.53 2640.0 2599.7 2677.8 78.1

Mining 4.87 3.55 1.31 23.6 23.9 23.7 -0.1

Manufacturing 2.54 3.93 -1.39 581.7 573.6 588.0 14.4

Construction 8.52 2.83 5.68 305.9 323.3 329.4 6.1

Trade HotelRestaurant etc.

8.68 9.52 -0.84 465.2 461.3 471.7 10.5

Other Services 8.58# 5.55 3.04 623.2 642.2 642.7 0.6

Non-Agri Total 1999.6 2024.2 2055.7 31.4

23


24/32

The overall employment has declined by 1.31 lakh during April to June, 2009 over

March, 2009. On month to month basis, the employment declined by 0.38 lakh in

April 2009 and 1.57 lakh in May 2009 while it increased by 0.64 lakh in June 2009.

The overall decline in employment in exporting units has been observed to be 1.67

lakh as compared to increase in employment in non-exporting units by 0.35 lakh.

The most effected sectors are export oriented units especially in Textiles, IT/BPO and

Gems & Jewellery, where the overall employment has declined by 1.52 lakh, 0.48

lakh and 0.23 lakh respectively during the quarter April to June, 2009.

As regard the contract workers, there is increase in employment by 0.40 lakh as

compared to decline in 1.71 lakh in respect ofregularemployment.

To ascertain the reasons for decline in employment in the exporting units like Textiles

and Gems & Jewellery, it has been revealed that shortage of workers during the

period is experienced every yearas the migrant workers prefer to visit their place of

origin resulting in their less availability during this period

Impact of Global Recession on Indian Car Industry

The crippling liquidity and high interest rates have slowed down the vehicledemand. However, the fall down started in July with a decline of 1.9% and

thereafter the industry saw a major slowdown in October 2008.

Maruti Suzuki reported a 7% decline in sales due to rising cost of the

materials and a falling rupee value.

Mahindra & Mahindra, the India's largest SUV and tractor manufacturer,

showing profit fall of 20.6%.

Tata has reported that its profit fell from 34.1 percent to 3.47 billion rupees

because of the slower growth in the industrial production. Company has also

recorded a 20% decline in the sales as compared to last year.

24


25/32

Truck sales plunged 65% to 9,258 units against 26,564 units in the same

period last year, as truckers were unable to expand their fleet due to

deepening economic slowdown.

India Incs fund raising via IPO in 2008 dips to 3-yr low

India Incs capital mobilization through initial public offering has hit rock bottom as the total

amount raised via this route in 2008 aggregated to $4,509 million, the lowest in the last three

years, says a report.The total fund mopped up through IPO in 2008 was $4.51 billion, 18.34 per

cent lower than the amount raised in 2005.

Impact of Global Recession on Indian Car Industry

The crippling liquidity and high interest rates have slowed down the vehicledemand. However, the fall down started in July with a decline of 1.9% and

thereafter the industry saw a major slowdown in October 2008.

Maruti Suzuki reported a 7% decline in sales due to rising cost of the

materials and a falling rupee value.

Mahindra & Mahindra, the India's largest SUV and tractor manufacturer,

showing profit fall of 20.6%.

Tata has reported that its profit fell from 34.1 percent to 3.47 billion rupees

because of the slower growth in the industrial production. Company has also

recorded a 20% decline in the sales as compared to last year.

Truck sales plunged 65% to 9,258 units against 26,564 units in the same

period last year, as truckers were unable to expand their fleet due to

deepening economic slowdown.

Nasscom lowers IT services exports growth to 17% in FY09

NASSCOM said software and service exports will grow 16-17% in 2008-09 to $47 billion, lower

than earlier estimates of $50 billion as the global economic slowdown dampened demand.

The number of people who were working with industries

25


26/32

like Textiles, BPO, Automotive, Steel Production, IT, Jewellery, Construction, Minining were

162 lakh during october and the number has decreased to 157 lakh during december 2008.

Exporting industry which was affected the most.

Impact of the Recession on Indian IT sector

IT spending as a percentage of revenue normally varies from 3.5% in manufacturing companies,

5-6% in global retail chains to about 9.5% in the banking industry.

IT Enabled Services sector was the hit since a majority of Indian IT firms derive 75% or more

of their revenues from the United States

Infosys - The revenues from BFSI that were at 37% in June 2003 have stayed more or less

unchanged as a percentage of total revenues. In the December 2007quarter, Infosys got close to

37% of its revenues from BFSI. This slipped to 34% of revenues in the March 2008 quarter. In

the quarter ending December 2008, BFSI showed a sequential growth of 4% in volume

Wipro - Indias third-biggest software exporter, and Cognizant, ranked sixth, have seenrevenue from the key Banking, Financial Services and Insurance (BFSI) vertical rise by about a

fifth between Oct-Dec 2007and July-Sept 2008

April-June 2008, Cognizant recorded the highest growth from financial services vertical among

the Offshore peers. This was mainly due to the type of financial services clients in the portfolio

and the multiple operating levels

Tata Consultancy Services, for example, earned 42%of its revenue in the second quarter of CY

2008 from the BFSI

Impact of exchange rate on revenues In IT sector, the margins are likely to be

challengedon account of the slowing growth in the US. Rupee depreciation seems to be the only

26


27/32

tailwind that thesector enjoys. This can be evident from the fact that theout of the increase in

the IT export revenues for FY 2008over FY 2007, almost half of the increase could be attributed

to the rupee depreciation during the sameperiod.

Impact of Recession on Indian Aviation Sector

India's civil aviation industry is the second largest loser after the US due to the recession worldwide.India

will post the largest losses outside the US - potentially around $1.5 billion this year. Airlines globally will

lose $5.2 billion this year, and a further $4.1 billion next year.

Indian real estate price can fall 60 to 70%

The real estate sector in India may have seen its best time for the next several decades. The real estate

markets now heads downward, as people cannot make their mortgage payments.

OP Bhatt, chairman of State Bank of India (SBI), the countrys largest bank, expects 50% correction in

the housing sector prices in the country. In India we may witness up to 50% correction in pricing in the

mortgage markets. If that happens, its good news for the Indian banking system as NPAs would reduce

and new business would fall-in, he saidat the concluding session of FICCI-IBA Conference on Global

Banking: Paradigm Shift, in Mumbai. According to other analysts, the market can roll downwards another

additional 15 to 20% before stabilizing. The commercial and residential sectors in major metropolis areexperience severe credit crunch, defaults and bank takeovers. The glut of unsold apartments is

skyrocketing. The residential mortgage market is collapsing faster than the subprime mortgage market in

America.

The impact on retail industry:

The inflation or the economic slowdown is adversely affecting the retail industry. With the

suddenly disturbed economical status, consumers are gradually losing interest on buying. And

for the interested, the unbalanced income, followed by the economic slowdown, is not meeting

their buying requirements. This evolution had soon disappointed the hopes of retail industry.

Anyhow, its all a short-term crisis for the retail industry until the things turn around.

27


28/32

Highlights of India's fiscal stimulus packages:

The following are the highlights of the fiscal stimulus package unveiled by the government on

Sunday to contain the impact of global financial crisis on the Indian economy:

Plan, non-plan expenditure of Rs.300,000 crore (Rs.3,000 billion/$60 billion) in four

months

- Parliament nod to be sought for Rs.20,000 crore more toward plan expenditure

- Across-the-board cut of four percent in the ad valorem central value-added tax

- Interest subvention of two percent on export credit for labour intensive sectors

- Additional allocations for export incentive schemes

- Full refund of service tax paid by exporters to foreign agents

- Incentives for loans on housing for up to Rs.500,000, and up to Rs.2 million

- Limits under the credit guarantee scheme for small enterprises doubled

- Lock-in period for loans to small firms under credit guarantee scheme reduced

- India Infrastructure Finance Co allowed to raise Rs.100 billion through tax-free

bonds

- Norms for government departments to replace vehicles relaxed

- Import duty on naphtha for use by the power sector is being reduced to zero

- Export duty on iron ore fines eliminated

- Export duty on lumps for steel industry reduced to five percent

28


29/32

RBIs monetary measures & fiscal package update

The total packages announced by RBI & Government of India accounts for $ 60 billion.after the

RBI made changes in monetary policies by cutting key rates.

CRR has been brought down to 5 %

Bank Rate has been brought down to 6%

Repo Rate has been brought down to 4.75%

Reverse Repo Rate has brought down to 3.75%

SLR has kept on 24%

Government has followed up this with a 30700 crore fiscal package mainly comprising

additional spending & excise duty cuts.

Will Recession End in 2009?

Six of worlds top 10 economies out of recession

Some light showed up at the end of the recession tunnel as France and Germany announced

unexpected returns to the growth path, which Means that four of the worlds five largest

economies and six of the top 10 are now not in recession.

China and India are already growing at healthy rates, although lower than their own pace

for the last few years.

Japan too has climbed out of recession and so has Germany.

The Euro zone as a whole is also now projected to have contracted by just 0.1%

compared to the 2.5% fall in GDP in the first quarter (January-March).

29


30/32

Brazil is also now no longer in recession having grown by 1.5% in the second quarter.

UK, which is the seventh largest economy shrank 0.8% in the second quarter.

Italy, the tenth, largest economy shrank 0.5% in the second quarter.

These economies and the US account for 47% of world GDP in PPP terms.

India's IIP Growth Rate Up For June 09

India's Index of Industrial Production, or IIP, rose much faster than expected in June from last

year, mainly driven by stimulus packages, and easy monetary policy, coupled with higherdemand for consumer goods and increased mining activity.

As per the data released by Central Statistical Organization of the Ministry of Statistics and

Programme Implementation, the IIP for June had a growth rate of 7.8%, much higher than the

5.4% for the corresponding month last year and the revised growth rate for May.

The cumulative growth for the period April-June 2009 stood at 3.7%, down from 5.3% for the

corresponding period last year.

30


31/32

CONCLUSION

Governments all over the world bring out huge amount money to improve the economic

activities.

Huge reductions in corporate spending.

Weak exports as overseas economies fall into recession.

Changes in monetary policy of India as well as of other countries.

Continued credit pressures in residential housing and consumer lending which results in

slowdown in real estate business all over world.

High inflation in food and basic services.

Lower corporate investment plan

Huge reduction in consumer spending which results in lower production.

Huge reduction in corporate investment and salaries has been cut.

Increased unemployment

It is expected that US Economy will start growing after second quarter of 2009.

31


32/32

Investment for growth of social sector may be reduced.

u s economic recession & its impact on indian economy

Documents