Impact of global recession and financial management challenges and strategies: For Indian Economy ABSTRACT:- ? The world is witnessing one of the most critical changes in global economy, communal, regional and national conflicts which is the worst recession of the century. This has made an impact on every sector and there is a need to battle these crises with a new mindset. ? The current slowdown, which world is witnessing, is cyclical, which happens every 10 years. The last time it happened was in 1998.
During every slowdown there are companies, which close down; especially the small ones. ? This paper is an attempt to look into the Impact of global recession and financial management challenges and strategies: For Indian Economy, major initiatives taken up by the Government and Reserve Bank of India in the order to contain it with special focus on employment, import-export, interest rates, risk management, credit demand and taxation, Liquidity etc. to come out from this situation of recession. RECESSIONS:- pic]Recession is the result of reduction in the demand of products in the global market. Recession can also be associated with falling prices known as deflation due to lack of demand of products. Again, it could be the result of inflation or a combination of increasing prices and stagnant economic growth in the west. A global recession is a period of global economic slowdown. The International Monetary Fund (IMF) takes many factors into account when defining a global recession, but it states that global economic growth of 3 percent or less is “equivalent to a global recession”.
By this measure, three periods since 1985 qualify: 1990-1993, 1998 and 2001-2002. Indian 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. A recession, which included two successive quarterly declines in gross domestic product (GDP), a measure of the nation’s output. CHALLENGES FOR INDIAN ECONOMY:- In the age of globalization, no country can remains isolated from the fluctuations of world economy.
Heavy losses suffered by major International Banks is going to affect all countries of the world as these financial institutes have their investment interest in almost all countries. What started as a small matter of sub-prime loan defaulters has now become a subject of global discussion and has engulfed the global economy scenario. A negative atmosphere, shortage of cash, fall in demands, reducing growth rate and uncertainties in the market are some of the most visible aspects of an economic depression.
As of now India is facing heat on three grounds: (1) Our Share Markets are falling everyday, (2) Rupee is weakening against dollars and (3) Our banks are facing severe crash crunch resulting in shortage of liquidity in the market. Actually all the above three problems are interconnected and have their roots in the above-mentioned global crisis. Stock Markets are bleeding everyday and it is not possible to raise money there. Regarding external borrowing from world markets, this option has also become difficult.
The challenges faced by economy of India due to impact of recession are: 1. Sustain economic growth: o Difficult financial conditions o Overcoming balance of payment issues o Need to find capital in the absence of overseas flows 2. Balancing of growth and inflation The result of inflation or a combination of increasing prices and stagnant economic growth in the west began with the stock market drop in US. – Speculation – Rising oil prices – Tightening of liquidity . Slowdown in jobs especially in IT SECTOR: Tens of thousands job losses, especially in key sectors like the IT, automobiles, industry and export-oriented firms. 4. Real estate price is still down by 10-15% 5. GDP rates fell down to 6% from 9% 6. Multiple loss in business and exports The global economic recession has taken its toll on the Indian economy that has led to multi-crore loss in business and export orders. . Crash in stock exchange 8. Consumer loss in economy-issues in banking sector 9. Forex reserves fluctuations – Liquidity Crunch – FII withdrawal – Export Challenging global demand scenario It has also shaken up the investment regime, which is being restructured, with the telecom sector likely to be declared off-limits for foreign investors. Global recession is a period of global economic slowdown. STRATEGIES FOR INDIAN ECONOMY:-
As the scenario in India is basically Domestic demand driven economy where inflation is down, banking system is stable (no bankruptcies) and it is a Service driven economy. The following strategies can be adopted to tackle the 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. • Indian exporters are being offered credit facilities by the Centre Government to resume exports by the private sectors. OPPORTUNITIES:- Challenges represent one side of the coin; there are opportunities galore on the other. The opportunities where the Indian economy has advantage are 1.
Indian Banking – Strong base In India we follow a chain banking regulated strictly by RBI and Interest cut in home and auto loan led to a boom in house construction and increased auto sales. 2. Low cost options on many new sectors viz film and animation. 3. up rise of well planned infrastructure. 4. Large educated youth segment. 5. Railway sector, Telecom sector, Tourism sector, Share market investment, Health care (medical field), Education, Re-evaluating strategies, New ways of cost cutting. The measures which need to be taken to overcome the economic slowdown are: 1.
New markets should be tapped – especially domestic. 2. Skilled manpower should be employed. 3. Upgrade the technologies. CONCLUSION:- Due to globalization, the period of global economic slowdown and challenges which every country has to face as no country can remains isolated from the fluctuations of world economy, the strategies which India has adopted i. e. Service driven economy, technology up gradation, concentration on domestic market and Promotion of small scale and rural industries and Infra structure development for foreign investment have really helped to overcome the severe economic meltdown.