US recession : Its effect on Indian economy

In economics, a recession is a general slowdown in economic activity over a sustained period of time, or a business cycle contraction. Production as measured by Gross Domestic Product(GDP), employment, investment spending, capacity utilisation, household incomes and business profits all fall during recessions. Now this is recession only by definition.

US recession and its effect on Indian economy

The old saying “History doesn’t always repeat itself, but often rhymes”, is based more on fact than fiction. It’s been a lot of time we hear of “Recession” going on in US market. Everyone is talking about recession. We cling to newspapers, television news channels, and financial reports only to discover “what next” in recession. It would be naïve to imagine that a recession in the United States would have no impact on India. The United States accounts for one-fourth of the world GDP. The fears of a US recession led to panic in the Indian stock market.

The effects of the recession 2008 on India were quite distinct from those of the past. Here are some areas worth following:

1) In terms of specific sectors, the 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

2) The tourism sector was affected. Now is the time to aggressively promote health tourism. Given the availability of talented professionals, and with a distinct cost advantage, India can be the destination of choice for health tourism.

3) The manufacturing sector ramped up scale economies.

Since the first quarter of 2008, the United States of America started experiencing an economic recession. But apart from US the global economy faces the possibility of recession in 2009. The IMF predicts slower growth and a likely 2009 world recession. Countries include the UK, Australia, India, Japan, Germany and Spain will experience slower growth in the next year and a possible recession.

According to Governor of RBI, as India’s growth is mainly driven by domestic demand and consumption, the country would be less affected by the global financial turmoil, but it would not go completely unscathed. India’s growth will continue and even if there is some moderation, it will only be a modest moderation. But it will not be a recession and there will only be a slight deceleration. But India has to balance the concerns of maintaining price stability and sustaining growth. The word 'recession' is being frequently used in India in recent months despite the fact that the economy continues to grow and that even at 7 per cent in the current fiscal and perhaps 6 per cent in the next one, these will be amongst the better growth years for the Indian economy since independence.

Jobs in recession and Indian youth

However, there is certainly a deep recession as far as jobs for the highly educated are concerned. Ironically, this may be the first time in India's history when it is more difficult for the professional graduates to find employment or appropriate employment, compared to the less educated millions. The present job recession has also hit the aspiration level of the Indian youth. The myth of IT and the glamour if private jobs are all history now. Now in an age of pink slips and mounting recession, the Indian Youth is once again looking in public sectors for jobs. Once shunned for its non glam image and boredom, the youngsters today are choosing security of the government jobs over money in corporate sectors. The global financial meltdown and the serious job cut in the private sectors are making youth nervous, jittery about the present private office scenario.

And finally, a trickle has already begun of professionals of Indian origin returning to India as job opportunities dry up in the US and other developed economies. What should the newly graduating (and their parents) do? They have to start with the acceptance of this new ground reality that merely a professional degree even if it is from a top-10 or a top-25 institute is not enough to guarantee them a job of their choice. It is important for those who are in the job market today to understand that India's economy is spread across India and not confined to the top eight or nine cities only. Hence, jobs are also spread across the entire urban and even rural India and, therefore, the employees must be willing to work from there.

Fiscal, monetary policies help India dodge recession, 'sprint'

Fiscal and monetary policies have helped India in dodging the recession and sustaining the economy. India named as a 'sprinter', the downward trend in the country's industrial output seemed to have ended, with a pick-up likely due to new infrastructure development.

Investor confidence in India had certainly improved, as reflected in the rapid increase in net capital inflows in the stock market during recent months. Sherman Chan, an economist, said in a note on the recovery of the Asia-Pacific region that amid increased sightings of green shoots, the bottom of the global downturn is now in sight China, India and Indonesia & have dodged recession and maintained strong growth despite the global turmoil.