Recessions And Indian Industries

“Wall Street excesses helped lead to the GREAT Recession”

                                                                                                  -Chuck Schumer (Senator from NY)

Introduction:

India was recovering and gradually moving towards Industrial boom during the period 2005-2009.All of a sudden Industrial slowdown happened in 2008-09 as a result of global economic recession. The CSO (Central Statistics Office) estimates for 2008-09 shows that the industrial sector attained a growth rate of only 2.5 per cent as compared to that of 11.6 per cent and 8.5 per cent growth rate recorded in the corresponding period of 2006-07 and 2007-08 respectively.

Now, we are at 2019 and some indicators like nominal GDP (NGDP) are worse than 2008-09 levels.  India's GDP growth has slowed down to 5 per cent--the lowest in six years, instantly triggering a gloomy mood across sectors, which was already under pressure due to weak consumer demand and a credit squeeze from 2018.

Hence, Is India a door knock away from Economic Disaster again? The answer can be both, yes and no.

We will try to find out that in this article.

The Analysis says that first two quarters of 2020 is going to be very crucial as some Indian sectors are already experiencing the slowdown. Indian Automobile Sector, the fourth Largest in the world in terms of sales, has been facing worst slowdown from last 10-11 months on account of declining demand, resulting in a significant sales slowdown. The situation is similar, if not so serious, in a few other sectors such as real estate and banking. Also, growth of eight core industries dropped to 2.1 per cent in July,2019 mainly due to a contraction in coal, crude oil, natural gas and refinery products, according to official data.

The eight core sector industries - coal, crude oil, natural gas, refinery products, fertilizer, steel, cement and electricity - had expanded by 7.3 per cent in July last year.

According to the data released by the government on September,2019, the output of coal, crude oil, natural gas and refinery products recorded negative growth in July.

During April-July, the eight sectors grew by 3 per cent compared to 5.9 per cent in the same period the previous year (2018).

Even, India’s manufacturing sector hit its slowest in 15 months in August,2019 as demand and output grew at their weakest pace in a year and cost pressures increased.

While from the above mentioned points, you can get an Idea about  the economic spectrum of India, a little deeper research of report from various states indicates that the economic slowdown has hit India where it hurts most--the crucial medium and small-scale enterprises (MSMEs) or the backbone of most Indian sectors.

Are we going to see another Recession?

A recent survey of economists conducted by the National Association for Business Economics (NABE) indicated that US might encounter a recession by 2020-2021, which eventually will  have a noticeable impact on Indian Economy.

Though, Trump has constantly dismissed such fears citing stable economic growth, a number of factors including the US-China trade dispute are riling up economies around the world. Many of the world's economies are currently suffering from daily stock market upset, primarily due to the US-China trade tension.

Is there any Benefit of Recession?

Like any other thing, recessions also seems to have some positive sides, Sector giant companies get hurt for inefficiencies that they laughed off in better times. A recession means general fat trimming for companies, from which they should emerge stronger, and that's good news for investors.

Bottom Line:

In case,  recession takes over the global economy in 2020 or 2021, European countries would be worst hit due to political uncertainty over Brexit.

However, as Digital India is increasing its global exposure and the current economic status, it is expected that we may see tighter control over expenses through a slew of measures, including a slower pace of hiring and restructuring to optimize costs.

Shreya Malakar

PGDM Batch 2019-21