recession sdmcollegeofbus-management-100215182139-phpapp01
TRANSCRIPT
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Recession & its Impact on Recession & its Impact on Indian EconomyIndian Economy
--B.V.Raghunandan, SVS College, BantwalB.V.Raghunandan, SVS College, Bantwal
SDM College of Management,Mangalore.
February 26, 2009
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Recession: What it MeansRecession: What it Means
An economic situation of continuously declining demand
resulting in dwindling business and industrial confidence
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Characteristics of Characteristics of RecessionRecession
• 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
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Role of GovernmentRole 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
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Genesis of A RecessionGenesis 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 Bank’s Efforts in Contraction of
Credit
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US RecessionUS 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
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US Recession …(contd)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
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US Recession….contdUS 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%
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US Recession….contdUS 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
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Recession Then & NowRecession 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
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India & RecessionIndia & 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• RBI’s Close Watch
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Beneficial Impact on IndiaBeneficial 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
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An Agenda for An Agenda for Management Students 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
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THANK YOUTHANK YOU