Global economic meltdown

First of all we have to know about what is MELTDOWN?

So if we are talking about meltdown then we can say it’s an economic crisis. In a simple way we can define that meltdown is – A DECLINE OR A BREAKDOWN IN A SITUATION OR CONDITION.

Global economic meltdown has affected almost all countries. Strongest of America, European and Japanese companies are facing crisis of liquidity and credit. The global economic recession has taken its toll on Indian economy and because of this it leads to multicrore loss in Indian business and export orders, tens of thousands of job losses especially in key sectors like the IT, automobiles, industry and export oriented firms.

We can say recession is the result of reduction in the demand of products in the global market. Also we can say it associates with falling prices known as deflation due to lack of demand of product.

Recession in US is very bad news for our country because our companies in India have most outsourcing deals from the US. There is also a decline in the employment market due to recession in the west. Some companies have laid off their employees and there have been cut in promotions, compensation and perks of the employee.

During recession all companies whether a private sector or government sector are hesitant to take up new projects and they want to work on existing so recession is very bad for our country.

From where recession came in India:-

America is most affected country due to global recession which comes as a bad news for India, because India have most out sourcing deals from the US. So, the conclusion is from US recession come in India.

India has been struggling about the impact of US meltdown its economy and projected growth rate. Signals of the slowdown in US economy are most visible in the real estate sector where prices have corrected by 15-20%. In India other sectors have also started feeling the slowdown in economy. Sectors of Indian economy mainly IT affected by the US slowdown because of its export oriented nature.

As we know recession is decrease in demand for goods and services in economy and then it will turn in to decrease in production, lay-offs and a sharp rise in unemployment.

The recent meltdown in US market due to the subprime crisis has a great impact on Indian corporate sector.

The unemployment rate in US stood at 6.5% in 2008.

India is a developing country and US is the biggest consumer of goods produced by developing countries and as the consumption level in US economy is going down due to recession then the demand of good produced by these countries is also decreasing so it is also a reason of recession in India which comes from US.

Economic meltdown and environment:-

First of all what is relation between economic meltdown and environment sustainability?

Economic meltdown can adversely affect our environment because with the present economic down turn, many nations including India are now more concerned with stabilising their economies and for this a good extent involves increase use of natural resources to increase production and market.

Therefore the result is more natural resources would be used further depleting the highly diminished global resource base. It means every country uses more oil to mine and it reduces the already disappearing global oil reserves.

More fossil fuel might be burnt by industries increasing global warming. More sea food would be exported. More of the forest would be cleared for cultivation which is already in fewer amounts.

All we know recession decrease the financial power of the people and then they are bound to make a sudden approach on what is available and affordable and that would be nothing other than the natural resources, so if great care is not taken by government & all then that day is not too far when economic meltdown would translate into a serious environmental meltdown.

What we can do to overcome this:-

1. We can encourage the people to use recycle principles.

2. Concerted efforts should be made by everyone to embrace green living.

3. Policies should be enacted and implemented to ensure that industries comply with environmental laws.

4. People should be encouraged to live green.

5. Governments, NGOs and other organisations should pull resources together and find lasting solution to the meltdown.

Cause of recession:-

The main cause of recession is incensement of price it means according to demand and supply theory when price of the good increases demand of the good decreases but in another way when price of the good increases then supply of the good also increases.

So, the situation at which supply is more than demand is called recession that’s why price increasement is one of the main cause of recession

– When a business man invested badly then it cause recession.

– One of the main causes of recession is also globalisation.

– Media is also responsible for recession because every time they helping to perpetuate this crisis and say “financial crisis” a business closes its door somewhere.

– One of the important reasons of recession is all big spending on easy credit during good year.

– Recession is also caused by stock market crashes.

Effect of recession on Indian economy:-

As we feel the cracks in the face of an earthquake then we can say the cracks are also visible during recession, when the markets are totally disrupted the effect shows.

The worst effect of recession on Indian economy is unemployment and it is the greatest fear of any man that how will he feed his family now?

When recession came here the female employees firstly feel the winds of change, as they are more capable of being wounded physically or mentally. They know that they will be suspended from work temporarily or permanently. Females who are working as a receptionist, public relations & communications, doing odd jobs in the office are picked out when recession came in India.

Due to recession exports for January 2009 has declined by 22%. Companies in the private sector and government sector are not taking new projects because of recession.

Some industries which are most affected by recession were airlines, hotels, real estate, beside this Indian exports also suffered a trouble and there was also a big trouble in the production of export-oriented sectors because of recession. Due to this government advised these sectors to reduce price.

Because of recession industrial production and manufacturing output decreases to 5% in the last quarter of 2008-09.

Decrease in demand in the US affected our IT and BPO (business process outsourcing) sector and it losses the opportunities for young person.

The famous IT sector of India which earned about $50 billion as annual revenue is expected to fall by 50% of its total revenues. Now it has been estimated that reduce in demand for exports would result in the loss of 10 million jobs in the export sector alone.

Effect of recession on Indian stock market:-

Effect of recession on public sector banks:-

Due to recession public sector bank announced to provide home loans at reduced rates to increase demand in retail housing sector.

1. Loans up to 5 lakhs maximum interest rate fixed at 8.5%.

2. Loans from 5 to 20 lakhs, maximum interest rate 9.25%.

3. In case of pre-payment no penalty to be charged.

4. Free life insurance cover for entire outstanding amount.

5. No processing charges on borrowers it means those people who are taking loans.

It means a person can get a loan up to 90% of the value of the house. These housing packages will also give a stimulus it means work like an incentive for other sectors like steel, cement etc.

Effect of recession on textile industries:-

Due to recession orders are declining from the world’s largest market the United States, the textile sector of India has been also affected seriously.

Textile industry is the second largest employer in India after agriculture. It generates job opportunities approximately for 33.17 million workers directly and 54.85 million workers indirectly, but due to recession industry analyst predict that by the end of April 2009, approximately half a million direct workers from textile, garment and handicraft sectors will lose their jobs.

The garments manufactured in India approximately 60%are exported to foreign market like United State, EU, and Japan and it generate revenue US$ 52 billion, but due to economic meltdown in US & EU it affect textile business in India and during 2008 the total output of textile sector came down by 10%. Many export orders are getting cancelled.

Effect of recession on Indian agriculture sector:-

Indian agriculture sector has not affected by global economic crisis except some export oriented products. As we know 60-65% population of India depends on agriculture and the agriculture sector of country will save the India from the huge impact of the global economic recession. This time agriculture is the key for Indian growth in this difficult time.

Effect of recession on individual’s life of different companies:-

On Satyam:-

Satyam kept approximately 5000 employees on virtual bench and those employees will not get full salaries, 50-60% of salaries may be cut and number of working days is reduced. Some people may be put on training and the salary paid is only 25%.

So virtual bench is partial lay off, it is a cost cutting method because employees are the biggest cost for an IT company.

On Wipro:-

Wipro is the number three Indian software services exporter, and due to recession Wipro results fail to match expectations. Indian IT outsourcing company Wipro is seeing a few customers because of less demand of the product at the time of recession.

Company sources reveal that a number of employees have been put under the massive layoffs condition. Wipro senior business consultant Pavan vyas said, the recession has challenged the way of company. The company’s peer it means ability have also been affected by the recession. So we can say US recession will certainly affect the Indian IT sector.

On Kotak Mahindra:-

At the time of recession international finance corp. (IFC) a World Bank group member, will give trade financing of $51 million to kotak Mahindra bank to aid small and medium enterprises hit by recession.

The chief economist of the international monitory fund Olivier Blanchard and several IMF economists have proposed that government should offer RECESSION INSURANCE.

Companies and individuals would buy insurance policies, pay a regular premium for them and receive a benefit if some measure of the economy like GDP growth, dropped below a specified level.

And recession insurance might help alleviate the economic crisis by reducing uncertainty. Moreover, recession insurance might, in contrast to fiscal policy, impose no cost on the government, for it stimulates confidence, then the risk being insured against it prevented. The government’s ability to offer such insurance on a scale sufficient to make it costless is one reason to favour a public scheme over private insurer.

Blanchard and his colleagues point out that banks might conditions loans to firms on their purchase of recession insurance, which might help credit markets function better, addressing a serious problem underlying the current crisis.

So at the time of recession kotak Mahindra bank do commitment with IFC to help business in India. This is the first bank IFC has supported in trade finance in India under its global trade finance programme.

On TATA:-

TATA is also affected by it, recession hit salaries earning potential down, consumer capacity to buy a car it means consumer does not want to take risk and spent their money on the product at the time of recession so it affect the position of the company.

Indian outsourcing supplier TATA consultancy services (TCS) saw that their sales slow and profits stagnate during its last quarter. Many outsourcing in India have been hit by the global slump in financial services and the situation is set to worsen as western economies spiral into recession.

For the quarter ended 30th September 2008 TATA saw sales increase almost 15% and for the same quarter last year the firm saw sales growth of around 45% so we can say TATA is also affected by recession badly.

On Maruti Udyog Limited (MUL):-

At the time of recession Maruti zooms to rural market for sales. We all are aware about it that global meltdown has certainly hit the Indian car industry hard as the figures prove the industry posted a growth rate of 11% from April to October 2007 which has fallen to just 3% in 2008, why; because of recession.

Sales of small cars has also decreased in the face of the credit squeeze and to compensate the loss Maruti now plan to tap the rural market 60% of which runs on cash.

They launched a new model in Ludhiana at the time of recession to bring some excitement into the market and they observe that the Indian rural market has a lot potential.

At the end of 2008 the top official of Maruti udyog limited company says that recession has no impact on Suzuki.

Katsumi Takata managing director of Japanese two-wheeler giant Suzuki says that recession has not affected us during the launch of their super bike Hayabusa. He said may be recession starting, may be from the last month, may be this trend continues for a while but so far we are concerned, we are still growing. Every month we are going up.

Effect of price on FOOD during recession:-

Even as the world is struggling to fight global market meltdown with companies sacking employees and industries scaling down production but the world also have to tackle food shortage and soaring prices in the coming days.

According to united nation Food and Agriculture Organisation (FAO) the current financial crisis will adversely affect agriculture sectors in many countries including India.

This warning is issued by the FAO despite predictions that world cereal production is set to hit a new record of some 2.24 billion tonnes in 2008/2009. Again, global rice production is also expected at 450 million tonnes during the same period.

Still, this year’s record cereal harvest and the recent fall in food prices should not create a false sense of security.

If the current price volatility and liquidity conditions prevail in 2008/09, plantings and output could be affected to such an extent that a new price surge might take place in 2009/10, unleashing even more severe food crises than those experienced recently.

The report also noted that most of the recovery in cereal production took place in developed countries, where farmers were in a better position to respond to high prices.

In contrast, developing countries were largely limited in their capacity to respond to high prices by supply side constraints on their agricultural sectors.

The FAO report further noted that world agriculture was facing serious long-term issues and challenges that need to be urgently addressed.

These include land and water constraints, low investments in rural infrastructure and agricultural research, expensive agricultural inputs relative to farm-gate prices and little adaptation to climate change.

Effect on advertising spends during recession:-

* FOR SOME, its half glass empty. For the rest, its probably half full. So how does this recession hit the Indian online media space? Nowadays, brands are looking for more innovative ways to attract customers – whether be it increasing brand awareness, acquiring users, promoting new products or simply tapping into a new segment. India being the biggest untapped and fastest growing online market in the world – brands are more than happy to explore this space and use their money intelligently.

* The Indian online space is booming with new and innovative websites/portals. Which was the last ad you saw while you were surfing the Internet? With the rise of social networking and its addictive reach – we’ve seen all genres of ads splashed online. The first time I heard about the movie ‘Rock On’ was via Bigadda.com – would you believe it! Even production houses are using online media to reach its audiences as opposed to the obvious medium of choice – the television. With e-papers, e-bills, e-banking, online articles, news, videos, music etc – everything can be accessed through the Internet. So why should advertisers stay away?

* Brands do not seem to be reducing their advertising investment; instead they are investing money in the right media vehicles. They are weighing all the options and maximising returns. With the Indian Web space packaging a mix of both online and offline advertising solutions, brands want every penny’s worth at this time of recession.

* At this time of seamless technology, GPRS, 3G and state-of-the-art mobile phone – the mobile WAP space is a front runner for advertisers in terms of media vehicles.

* Recession has definitely forced advertisers to think – to think about more cheaper and effective advertising options.

How we can tackle or control the global recession?

As we know IT industries, financial sectors, real estate owners, car industry, investment banking and other industries as well are confronting heavy loss due to the fall down of global economy. Federation of Indian chambers of Commerce and Industry (FICCI) found that faced with the global recession, inventories industries like garment, gems, textiles, chemicals and jewellery had cut production by 10 per cent to 50 per cent

“Our economy is shrinking, unemployment rolls are growing, businesses and families can’t get credit and small businesses can’t secure the loans they need to create jobs and get their products to market,” Obama said.

So following measures we can adopt to control recession-

* Tax cuts are generally the first step any government takes during slump.

* Government should hike its spending to create more jobs and boost the manufacturing sectors in the country.

* Government should try to increase the export against the initial export.

* The way out for builders is to reduce the unrealistic prices of property to bring back the buyers into the market. And thus raise finances for the incomplete projects that they are developing.

* The falling rupees against the dollar will bring a boost in the export industry. Though the buyers in the west might become scarce.

* The oil prices decline will also have a positive impact on the importers

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Benefit of recession:-

The “job” of a recession is to clean the “fat” out of the system, mop up excess, and pave the way for the next expansion. Until that process is complete, there isn’t much from which a legitimate expansion can arise.

Recessions put weak companies out of business. In so doing, sdeployed more efficiently elsewhere. For example, Wall Street analysts who touted bankrupt Internet stocks are redeployed at local fast food restaurants to serve people in a capacity for which they are much better suited.

Stronger businesses that have used the contraction to firm up their bottom lines and grow more efficient are able to take advantage of these resources during the ensuing expansion. The economy emerges from a recession leaner, more efficient and in good shape for the next wave of growth and progress.