RECESSION IN THE PRESENT ECONOMY AND ITS

IMPACT ON BUSINESS SECTOR

By GAURAV BISARIA, Lecturer, Department of Business Administration, Integral University,
Luck now, UP, INDIA.
ABSTRACT

These days, looking out the window is not pleasant. There's such a heavy storm and thunder
outside. Bailouts, bankruptcies, equity market volatility, job cuts, cash flow pressure.... the speed
of recent movements in the world economy has ebbed the confidence of everyone.

The world economy is in turmoil and its impact is being witnessed by all countries around globe
with varying degree. In India, the situation is not so much awful till now. India has taken an array
of monetary and fiscal measures, in quick succession, to contain inflationary pressures and, more
importantly, to make available adequate domestic resources to maintain growth in the face of an
unprecedented international financial crisis and global economy drifting into recession.

But still, all is not well in Indian industry. The impact of global economic crisis has now slowly
started impacting the Indian businesses as well, especially those which are either internationally
exposed for raw materials (steel, oil) or whose revenue is in dollars. Along with these biggies,
Indian SMEs (Small and Medium Businesses) engaged in export business are also facing the hit
mainly because their sales are shrinking in the overseas markets(India's export growth rate
slipped to 15 percent in October, the lowest in five years).

Hunger makes man creative and this creativity when well channelised leads to productivity. We
can make and we can consume and to link the two we must invest - our minds, efforts and scarce
resources. This paper of mine will throw light on the impact of global recession on Indian markets,
strategies to be used in recession and the portions required to overcome recession.

INTRODUCTION

Business is slowing and there is lot of news about an economic recession.

Economic recession is defined as a decline in the country’s gross domestic
product growth for about two or more consecutive quarters in a particular year
.GDP is the total value of goods and services produced in a country during a
period of time (usually a year). Gross because no account is taken of
depreciation of the country's capital stock. As a part of a normal business
lifecycle when an economy that grows over a period of time tends to slow down.
An economy typically grows for 6 to 10 years and later is likely to go into a
recession for about 6 months to 2 years. Thus, economic recession is a declining
phase of the business life cycle when their decline in economic activities spread
across the economy.

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In total the recession have turned down the growth process and have set the
minds of economists and others for finding out the real solution to sustain the
economic growth and stability of the market which is desired for the smooth
running of the economy. Solution for the problem still remain at the top of the
mind of every one, still everyone facing the impact of recession but how long is
the major question which is of great importance.

The economy may be sputtering, but entrepreneurs can still succeed with the
right business model and cost controls

BODY COPY

CHARACTERISTICS FEATURE OF RECESSION

 Decrease demand for goods and services which in turn leads to decrease
in production
 Rising unemployment

 Sharp fall in business confidence & profits.

 De-stocking and heavy price discounting - this leads to lower inflation 

 Reduced inflationary pressure in the labour market as unemployment rises

 Falling demand for imports

 Increased government borrowing

WHAT IS THE IMPACT OF GLOBAL RECESSION ON INDIAN MARKET?

Global recession has become a hot topic today. According to The International
Monetary Fund (IMF), USA and the world will be suffering from recession 2009.
The prediction for this year in terms of global growth is quite apprehensive and
the growth rate would be as low as 2.2 percent. Growth rate below 3 percent
signifies a global recession. The global financial crisis has worsened the

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conditions of credit availability and the growing economies like India will not
remain insulated from the event.   Emerging countries like India are heavily
dependent on foreign investment for the purpose of country’s growth and
development in the core sectors. Foreign direct investment (FDI) has already
started receding in the year 2008 and this year, things don’t appear to be that
bright as well. India has witnessed slow industrial output and the output in
several core industries have declined significantly. Sectors like construction,
housing, automobiles, retail activity, textiles, commercial vehicles, finance,
petrochemicals, steel etc are going through a painful decline in terms of sales as
well as revenue. Since last three months exports have fallen by as much as 12
percent. India’s expected GDP growth rate of more than 7 percent is under
serious doubts because of the prevailing circumstances. This year is going to be
one of the toughest years for world economy and India in terms of growth and
development. However, the efforts have been taken by finance ministry as well
as RBI in form of stimulus packages and monetary steps. The rate cuts have
been of crucial importance for easing the flow of money into the system. There
are few positive signs also including falling price of crude oil and lower inflation.
However, conditions are likely to remain bleak and tough in the year 2009 and
we must be prepared for the impending difficult situations.

BUSINESS STRATEGIES IN RECESSION

Did you know that there are some people and businesses that don’t experience a
recession with the masses? Do you know how they accomplish that? Mostly
through planning and implementing solid and proven business building
strategies.  Here are several helpful areas to consider for your business. The
following are some ideas to explore your business during this hard time:

1. Concentrate on the 20 That Produce the 80

Remember the Pareto principle. Twenty percent of your customers bring in 80

percent of your revenue. This number varies, it could be 20 percent that brings in
95 percent, but you get the point.

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 Low investment by Reduction in
foreign companies exports

Impact of
Global
Recession

Sacking the
Decrease of value Cutting existing base of
of rupee down profit Indian
of margins employees
from U.S.A.,
China etc.

In a downturn, customers are more likely to go with a more trusted source. If you
constantly build relationship with your existing customers, more power to you.
Stay in touch and let them know if you are interested in working with them.

2. Spend Smarter and Diversify- Don’t Stop Marketing

By all means, don’t cut on marketing and advertising, but its fine to reduce
budgets if appropriate. Creative marketers could use some of the low cost to free
methods to keep their business out there. If existing marketing efforts work fine,
keep doing them but if cost is the problem consider them at smaller scales.
Complement with other marketing strategies.

3. Repackage for Customers with Limited Budgets

Related to the second point above, your customers or clients are also looking for
ways to cut cost. When business is good and you’re busy, you may have
overlooked some of the smaller customers who can’t afford what you have to
offer at the price point. Consider repackage your products or services so they
become more affordable to another market segment. When business is slow, you
need to search alternatives that put extra revenue in your pocket.

4. Provide Value and Measurable Results

Besides repackaging your products to make them available to small budget

customers, you still want to emphasize on value and provide measurable results.
Remember that people are looking to save money and unnecessary spending.

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They may be more likely to request a refund if your product or service doesn’t
provide the kind of results they want.

5. Seek Additional Revenue Sources

It may be the right time to team up with business partners to cross promotes
each other. It may be in the form of direct promotion. This is a type of a strategy
where you can enhance the image of the other company as well as their products
and the same can be received in reciprocal. This is one of the fantastic and new
forms of strategy.

6. Stay Healthy

If you get run down and stressed out, you won’t be any good to your business,
your clients, your family, or anyone else.  And you won’t be able to implement the
strategies that will make and keep you profitable.

7. Manage Your Personal Finances - Debt free living is certainly attainable, but
the first step toward debt free living is living within your means. Cutting personal
expenses mean less money you need to take out of your budget.  Learn to pay
off your mortgage early - for most people, this is their largest expense in their
budget.

8. Diversify

Find new revenue streams by offering additional products and services related to
your primary line of business.  One great way to do this is through affiliate
marketing which allows you to refer people to businesses directly from your
website and earn a commission for closed sales. .

9. Bring Your “A” Game

Give 100% to your business and your customers and they will not only give you
repeat business but will trust you with referral to their friends and family.

10. Become Efficient

If you aren’t using technology efficiently, start to. There are so many daily tasks
that can be automated, and can save you lots of time and energy. Also,
outsourcing or partnering with other companies or freelancers is a great way to
maximize your time.

11. Focus

This has always been a struggle for me, and I know that many entrepreneurs
also struggle. Get some accountability if you need to, but just do whatever it

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takes to stay focused. Don’t start new projects until your current projects are
completed.

12. Be Prepared

Have a plan and work your plan. Be proactive, not reactive to changes in your
industry and the market place.  Most of all, don’t expect what has worked in the
past to always work in the future.  I made that mistake several times and it was
very costly.

13. Cut Costs

The good technique for planning is to foresee the things and then construct the
objectives. According to our objective, know all your actions required to
manufacture a particular product. Then eliminate all your undesired actions and
automatically you will be cutting costs. If you don’t have a budget for your
business, stop now all your un-necessary actions and know appropriate actions.
If you are a small business and you co-mingle your personal and business
expenses, not only is that not the best practice, but you are probably paying too
much.

14. Stay in Front of Your Customers

Do you communicate consistently with your clients? If not, they are very likely
doing business with other companies that do (your competitors). Doing this by
post is costly, so I recommend using email marketing. E-mail marketing is one of
the economical device and most like device to be in touch with customers. This
net has become the daily habit of the people in the society to use it for their own
knowledge and experience. If they do not use it they feel that they are missing
something from their daily routine.

15. Teach Your Employees The Value of a Customer –

The customer is the future of the business. The customer helps pay their
paycheck.  The customer is not an interruption. The customer in front of you
takes priority over the anything else.  To stay recession proof, you have to have a
team that understands the value of the customer not just coming back, but
bringing others back with them

HOW TO OVERCOME RECESSION

The major player in a recession or an economic collapse is the government. It

can still avert an impending economic and financial disaster. If Argentina did it in
1999-2002 economic crisis, so can the American and the Indian government.
The different steps involved in overcoming the recession are:

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1. Encourage exports:

The government should focus on this business segment because it would infuse
necessary foreign currencies. There should be number of important steps taken
by countries to inject liquidity into the financial system, recapitalize banks and
other systemically important institutions. Some countries have also introduced a
number of innovative, even unorthodox, measures to restore confidence so that
the financial system could start functioning again. The World Bank, regional
development banks and national governments need to consider measures such
as providing additional credit for infrastructure projects, promote new instruments
for infrastructure financing and providing capital and liquidity support to banking
institutions to lend to infrastructure projects that are underway. Industrialized
countries can also help to revive trade flows in developing countries by
expanding the scale of export credit finance available to these countries. We
know there is a temporary market failure in this area with elevated risk
perceptions which discourage private flows. There is a need to intervene to
overcome market failure. A collapse of trade is the last thing that one wants in
the current crisis, with all its implications for growth and employment.

2. Provide accessible credit for business:

Business should be encouraged by the government to compensate for

unemployment. More businesses mean more jobs for the people. Or, at least,
source of income for the family. Outsourcing is a cost-effective method to
do business in recession. In case we have staff or an in-house business
partner even then you can get in benefits. So look at outsourcing, as a method of
cutting infrastructure costs and adding suppleness in vague economic times. On
outsourcing a strategic outside partnership is always developed with whom your
interests match so as to raise and expand your business. Whenever a business
owner see the slowdown in the economy one thinks that there are two options:
cut expenses or increase your revenue. In such situation many business owners
choose the first option and again think on their expenses. It’s a general view that
whenever you want to stay in business you should reduce your overheads. And
the overheads can best be reduced by managing the staff properly.

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3. Improve tax collection:

Taxes can finance government expenditures such as provision of credit to

businesses or budgets for social welfare. The whopping Rs 60,000 crore shortfall
of tax revenue collection in 2008-09 which is a direct impact of the economic
slowdown will only have adverse impact on public expenditure and constrain the
spending plans of the next government. The systems in departments related with
tax collection should be modified and should be thoroughly checked. Positive
outlook in the departments should be developed in the process. This will also
enable people to get back on their feet and start a new. The peoples who are not
paying taxes should be made accountable for that and should take it as their
moral values. High revenues through Income Tax can lead to more flow of the
money society.

4. Social welfare:

This will quell panic and riots and restore confidence in the people. There is a
activity done by U.S., China and Australia which is called as the stimulus
package. US congress approved a $170 billion stimulus package that will consist
of rebate checks to be mailed to 117 million low and middle-income household.
China stimulus plan is 4 trillion Yuan announced by the central government on
9th November 2008 to prevent hitting the 4th largest economy. Australia
announced $7.4 billion fiscal stimulus package to overcome recession in this
great financial crisis since the great depression. This stimulus package is to
invest in infrastructure and social welfare by the end of 2010. This stimulus
package may not be sufficient to overcome the economic recession but it can be
a great booster for any economy.

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Bring India's Swiss deposits to fight recession
to counter the current recession, India needs to get back US $1,456 billion cash
—1.8 times it's GDP—that has been illegally stashed in the Swiss Bank
How many of us are aware of the startling fact that Indians top the list of
clandestine money depositors in the Swiss Bank? Hold on if you thought it was a
statement based on some wild guess and general perception about corruption in
India. Instead, it is a fact based on the numbers revealed by the Swiss Bankers
Association itself. The money deposited by Indians, mostly politicians and
bureaucrats and off course some business tycoons, in the Swiss Bank has piled
up to create a huge coffer of US $1,456billion. Paradoxically, like the rest of the
world, Indian economy too is in deep crisis and requires huge amount of liquidity
to tide over the situation. Economies are made for the welfare of citizens in
particular and human kind in general. How can unethical trade and financial
practice be allowed to swallow the destiny and right to live a descent life of
billions of poor people who still starve while the banks are spilling over with
money? 

Can ideas change the world? Of course they can. That’s what ideas are meant to
do. But those that can change the world are often not big and complex, but
simple ideas re economical and extra-ordinary.

5. Improve Tourism:

Lure more tourists to the country. More tourists mean more money injected to the
economy. Businesses will naturally sprout even small businesses in order to
cater to the needs of these tourists. Tourism and Cultural Affairs Minister Ambika
Soni has said tourism growth had reduced from 14.54 per cent to 8 per cent, and
the Ministry was making an all out effort to recover from the dual setback of
global recession and Mumbai terror attacks. Tourism will be a key factor in the
global drive out of recession and a strong contributor to a long term green
economic new deal. The fall in the air travel rate and the resultant cut in
operations and jobs have cast a shadow on India. India is one of the selected
countries which registered growth despite recession and this indicated its
inherent health. Tourism in the country is one of the important foreign exchange
earners but there was scope to increase this figure substantially.

The Visit India 2009 scheme was announced recently at a press conference
held by the Ministry of Tourism at New Delhi. The Ministry of Tourism along with
the hospitality, travel & airline industry have come together for the first time ever
to demonstrate their commitment towards Indian tourism. This new scheme will
give attractive incentives, by way of value additions that would be offered to
foreign tourists visiting the country during the period April to December 2009.
Announcing the scheme, Sujit Banerjee, Secretary, Ministry of Tourism said,
“India has always been an ‘Incredible’ destination for visitors from overseas and
there is no time like now to visit India in 2009. The three major Indian carriers Air

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India, Jet Airways and Kingfisher airlines are partners in the scheme and will
offer complimentary air passages for traveling companions.
The incentives would be offered in collaboration with Airlines, Hotels and Tour
Operators. The scheme works on the concept of providing one additional or
complimentary service to the tourist, for every service paid for. For instance one
complimentary international air passage for traveling companion, one night
complimentary stay in the hotel booked by the tourist, one complimentary local
sightseeing tour in any one city of visit and one complimentary Rural Eco Holiday
in the country. All member hotels of the Hotel Association of India will offer
benefits. These benefits include stay one night and get the second consecutive
night free, stay two nights and get the third consecutive night free and stay three
nights and get the fourth consecutive night free. Other hotels, including ITDC,
HRH Group of Hotels, Select Group of Hotels have also individually offered
benefits under the Scheme. Members of the Indian Association of Tour
Operators, who are recognized by the Ministry of Tourism, will offer one
complimentary local sightseeing tour in any one of the cities included in the
itinerary of the tourist.

CONCLUSION

When recession looms, it becomes more important to pay attention to what’s

happening in your target market and how they react during the time. Low cost
and effective marketing technologies are now available, making it possible to
reach your target market through the new channel and medium. Use them to
your advantage, and see your business grows while your competitors are stuck
in the same old paradigm.

The bottom line is that through well-planned initiatives, businesses can overcome
the obstacles and horripilation inspired by the global financial crisis. They have
to search for creative paths through the storm. Some experts have viewed that
the weather might hit 2009 hardest. If it really happens, industrial countries in
Europe and growing economics like India will have to bear most of the brunt of
the storm. And needless to say, SMEs will be the worse hit. That is why it is the
right time for businesses, both small and big, to implement some smart business
practices that make their future recession proof.

REFERENCES

 Bear, Stearns & Company, Recession scenario for 2008, December 18,
2007.
 Anand Vinod, The present day economic scenario in India-II, March, 2009.

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 SAIL-Steel Guru, Recession reports, March 12, 2009.

 Thangavelu Poonkulali, Hotels Most Vulnerable to Recession Scenario,

APRIL 2, 2008.

 Gruen Arthur & Wilkofsky David, Addendum to the VS&A Communications

Industry Forecast: The Recession Scenario, BUSINESS WIRE, NEW
YORK, Oct. 22, 1998.

 World mining companies worries development of Global recession,

October 23, 2008.

 Paul Sunita, Current economic scenario- Impact of recession on India,

January 20, 2009.

 Graham Frank, Worst case recession scenario- What can you do to be

prepared?

 Griswold W. David, Recession scenario same as in 1987, March 19, 2009.

 Joshi Sonal, Indian jobs scenario unaffected by global recession,

December 11, 2008.

 Kumar Krishna, Entreneurship and Business Explored, November 14,

2008.

 Sharma’s Mukul, So what is a recession?, January 13, 2009.

 Krishnamurthy Gayatri, Personal values for a recession, Business Daily

from THE HINDU group of publications, March 16, 2009.

 Yadav Shivangi, Recession or slowdown? February 09, 2009.

 Areejaf, Recession in India, March 9, 2009.

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