Recent Recession

1. Recent Recession C.A. Dr. V.M.Govilkar M.Com., LL.B., F.C.A., Ph.D.

2. Warning for years to come • In an address at the London Business School, on 25TH June 2015 Mr. RaghuramRajan warned that the global economy was "slowly slipping" into the Great Depression-like problems of the 1930s and the central banks need to sit together and define new "rules of the game" to find a better solution to deal with it. • Rajan also said it's a problem of collective action and not a problem of industrial nations or emerging markets.

3. IMF – World Economic Outlook July 2015 • Global growth is projected at 3.3 percent in 2015, marginally lower than in 2014. • In the first quarter of 2015, world growth—at 2.2 percent—fell some 0.8 percentage point short of the forecasts in the April 2015 WEO. • A setback to activity in the first quarter of 2015, mostly in North America, has resulted in a small downward revision to global growth.  • In emerging market economies, there is continued growth slowdown. • The distribution of risks to global economic activity is still tilted to the downside. 

4. Growth Projections by IMF

5. U.S. Economy • GDP $17.41 trillion. • Public debt $18.1 trillion i.e. 102% of GDP • Absence of new jobs . Growth in jobs and wages results from private-sector capital spending. (capex) Compounded growth in capex has been about 2% • US non-financial companies rated by Moody's held $1.73 trillion in cash at the end of 2014, ($1.67 trillion – 2013)

6. Euro Zone • The Eurozone's largest economy ,Germany, was expected to grow by 1.8 percent, but the German Economy Ministry slashed its forecast to 1.2 % . • If Germany falters, the entire region could be sent back into recession. • PIGS economies • Greece crisis

7. China's economic struggles • The once-booming economy has slowed—it went from 10% GDP growth in 2010 to an estimated 6.8% this year. It could get worse. • Export led growth model. • China is trying to address some of its growth problems through monetary and fiscal stimulus. Devalued Yuan three times in Aug. • Stock Market crash, declining commodity prices. • Sale of 33 tons of gold in July 2015

8. Rest of the world • Unrest in Hong Kong, • a Ukraine and Russian war, • fighting in the Middle East and • Ebola It's clear that the global economy is on shaky ground.

9. Remedy invented for 1930’s • Fiscal Stimulus • Delinking currency from stock of Gold • Expansionary Monetary Policy • ‘ Beggar – thy- neighbour’ Policy

10. Fiscal Policy as a tool • World Bank’s Global Economic Prospects released on 8-01-2015 argues that only countries with adequate fiscal space can take steps to counter the effects of a recession • “Fiscal space would help ensure that fiscal policy remains available as a counter cyclical policy tool. A wider fiscal space would not only increase the likelihood that fiscal stimulus is a feasible policy option, but would also improve its effectiveness.”

11. Same remedy followed till date • Stimulus packages, bail out packages, rising deficit • Quantitative easing • Government borrowing rising - U.S., Greece • Beggar -thy –neighbour 1947 IMF, Word Bank – loans and aids 1994 WTO Agreements – Dumping, Subsidies, Patents , Investments etc.

12. India survived • Not ‘ Export Led Growth Model’ – Share of India’s exports in world market is less than 2% and share of export in GDP is 25% approx. • Huge domestic market which is untapped • Strong Regulatory bodies – RBI, SEBI, IRDA, CCI, etc have been playing important role.

13. 4.Less dependency on housing sector http://www.isb.edu/ICREI/File/Ho...

14. 5. MSMEs in India • Indian MSME sector consists of approx. 45 mn units • Produces more than 6,000 products, ranging from traditional to high-tech items • High product diversification: 67% of its produce is from manufacturing goods, followed by 17% from services, and 16% from repairs and maintenance

15. 5. MSMEs in India .. 2 • Employs around 101 million people • Accounts for 45% of the manufacturing output • Contributes 8-9% to the country's GDP • Accounts for 40% of the country's exports • Source: CARE ratings

16. The Impact Impact of global economic slowdown would be • It could hurt exports • It might make people nervous enough to pull their money out of the stock market, • It will discourage capital expenditure by private sector • Government tax revenue will fall and government borrowings will grow.

17. Dos And Don’ts • Ascertain the domestic needs and produce to satisfy them . Do not produce only for exports. • Primary and secondary sectors be given due importance in framing policies. • Let us understand that Monetary and Fiscal policies are supplementary only. • Over leveraging be avoided. • Hedging be accepted but speculation discouraged.

18. Dos And Don’ts ( for individuals) • Wait and watch ,do not be panic, do not make any hurry. • Do not commit large investments • Do not commit for long period • Do not get tempted for speculation • Do not over trade • Do not put all your eggs into one basket • Do not expect the same margin as was earned so far particularly in real estate.

19. Dos And Don’ts ……. 2 • Do not get tempted for over leveraging • Strictly follow financial discipline • Avoid socially, politically and financially risky proposals • Do not give up your business, stay on the pitch • Produce for local consumption • Be the final goods producer ( not ancillary) • Branding of your products

20. THANK YOU V M Govilkar 9422762444 vgovilkar@rediffmail.com