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Impact of Recession in India

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Recession means when the economy of a country falls, and some undesirable situations also occurred due to recession. These causes down fall in employment rate, fall in wages rate, and fall in retail price. Recession may be occurred for two months four months but not more than one year. If it does then these are the not good sign for that country and for global economy also. In 2007 global financial crises occurred this also a recession. It started from USA and effects every developing country. India is also one of them and it effected the India also. The reason behind this is “structured investment instruments (Collateralized Debt Obligations, synthetic CDOs) created out of sub-prime mortgage lending in the United States. ” (Economic Discussion, n. d. ) In India flow of foreign currency and FII foreign institutional investors declined to US$ 22. 5 billon to US$ 11. 8 billion for four months of 2007 and 2008. During this period Indian GDP drops as in 2006-07 the GDP growth rate was 9. 6% which became 9. 3% in 2007-08 and due to the impact of recent global financial crisis and global recession, the growth rate of Indian economy became declining. In 2008-09, it reduced to 6. 8%.

During recession industrial growth was also faltering. Indian economy worked well from 90s but due to this it damaged the back bone of Indian economy. The RBI narrowed its money policies. Due to this recession MI was dropped from 19. 4 to 8. 2 and M3 from from 21 to 18. 7. Due to this recession series of unconventional measures helped to push up the rate of growth of bank credit from 25. 4 per cent in August 2008 to 26. 9 per cent in November 2008. In this period of recession Indian companies in USA loss their potential income and long and short-term credit. Despite these developments, the macroeconomic impact of the global financial turmoil, particularly on the GDP growth, has been relatively muted due to the overall strength of domestic demand in India and the predominantly domestic nature of investment financing. During recession period every general use good also peaking up its prices. As we all know, India is an agriculture familiar country and recession hit agriculture sector very badly no one buy agriculture goods in bulk because everyone was not sure about recession’s result. Indian banks also faced crises and lose about US$3. 6 trillion. But on the other hand, “India’s largest private sector lender ICICI Bank Ltd had the maximum exposure to Lehman Brothers—$83 million, less than 0. 1% of the bank’s consolidated balance sheet. Others like State Bank of India, Bank of India, Bank of Baroda, Punjab National Bank and Axis Bank Ltd had very small exposure to Lehman Brothers, which also ran a non-banking financial company in India, but its entire Rs. 800 crore capital was invested in government securities and bank deposits”. (livemint, 2013)

On the other hand, the benefit of this recession was seen in Indian manufacturing market. Before this Indian manufacturing market is slow and not more consist in exports but after this Indian government believed in their manufacturing power and their potential to earn more foreign money. This influenced the Indian economy and now the result is positive, and India sell most of their home goods and use them also. Recent Indian government also helps the public to take “Made in India” initiative. Three puzzling things of article· How Indian private banks do well in recessionBecause Indian banks on recession invested in private sector and most the private sectors were not connected to government and high interest on loans at recession helped them.

  • How Indian manufacturing industry do good after that till now
  • Because Indian government helped, and Indian market was not able to do lots of trade during recession with US and Europe, so government take initiative for making home made goods and start exporting theme to developed countries.

  • Which policies RBI used during recession
  • RBI used low interest rates and more liquidity during 2008 to increase flow of money in country and helped public in buy general needs good but private banks do not do same. References(n. d. ).

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