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Impact of slowdown on society

Manish Borah(1121012)

Premsagar M (1121027)

Sakshi Bhartia (1121042)Diana C Thomas(1121043)

Suganya M (1121052)

Khushbu Singh(1121054)

GROUP MEMBERS

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Slowdown

The amount by which aggregate demand decreases in

comparison to aggregate supply.

Industrial action in which employees perform their

duties but seek to reduce their productivity in theirperformance of these duties

GDP growth slows but does not decline.

Unemployment may rise and productivity may decline

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Recession

A recession is a business cycle contraction, asevere/deeper level slowdown in economic

activity.

Macroeconomic indicators such as GDP,

employment, investment spending, capacity

utilization, household income, business profits,

and inflation fall, while bankruptcies andthe unemployment rate rise.

Here, the GDP falls for 2 quarters.

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DepressionA depression is a sustained, long-term downturn in economic

activity in one or more economies. It is a moresevere downturn than a recession.

Characterized by its length, by abnormally large increases in

unemployment, falls in the availability of credit, shrinking

output

As buyers dry up and suppliers cut back on production, and

investment, large number of bankruptcies, significantly

reduced amounts of trade and commerce, as well as highlyvolatile relative currency value fluctuations.

Here, the GDP falls for more than 2 quarters.

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Impact of slowdown on business

Below-average GDP growth

Higher unemployment rates

Lower disposable incomes

Decreased consumer spending

Higher commodity prices such as oil, or food

Negative social impacts

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AGGREGATE DEMAND

< AGGREGATE SUPPLY

OVERPRODUCTION

FALL IN DEMAND FOR

LABOR

DECREASE IN

INVESTMENT

DECREASE IN PROFIT

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UNEMPLOYMENT

LOW INCOME

LOW STANDARD

OF LIVING

LOW

CONSUMPTION

Impact of slowdown on society

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Unemployment

Slowdown leads to impulsive rise in

unemployment and it can be viewed in

every sector and industry

In slowdown phase, government is

always pressurized to large extent as it

comes like an unwanted bad news for

them.

It results into lower tax revenues

because of lower income tax and lowercorporation tax revenues

Slowdown becomes a pessimistic phase

for the ruling government as it is

burdened up with extra weight ofborrowing.

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Low income

India is the biggest victim of financial crisis-

induced poverty, according to data obtained fromthe United Nations Department of Economic and

Social Affairs' (UNDESA).

The increase in poverty can be attributed to a

combination of reduced household incomes, rising

unemployment and pressure on public services.

Job losses in India were primarily in export-

oriented industries like textiles while employment

levels in Indian firms catering to the domestic

market were largely unaffected.

Monetary and fiscal policy intervention gave

Indian growth some resilience, while safety nets

like India's National Rural Employment

Guarantee Act (NREGA) helped to mitigate the

effects of the slowdowns

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Low standard of living

Inflationary pressures during the slowdown period

severely affected the standard of living of the people.

Due to rising prices consumers had to pay more for thesame goods and services.

Inflation's main consequence is a subtle reduction in the

standard of living.

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Decrease in consumption pattern

During crisis or slowdown, the total quantity and real value of goodspurchased falls.

Consumers are found to be spending more days shopping. This

increase in shopping frequency occurs through consumers purchasing

lower-quality goods from a wider variety of shopping channels.

During slowdown , the government designed stimulus fiscal packages

which was expected to expand disposable income and generate

demand.

Despite such initiatives to contain the impact of the global slowdown,

economy quarterly growth plummeted , the stock market slumped and

the rupee too devalued.

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Impact of the slowdown on consumers

Amidst a fear of a severe slowdown that resulting in low future earnings,urban consumers became apprehensive

The worsening of the global economic climate and escalation of consumer-

fatigue with mass-marketed luxury products, results in a shift from

conspicuous consumption to discerning consumption .

Impact of slowdown on saving rates

Consumers hoard significantly more of their income than they were during the

go-go days of high real estate values, easy credit and a steadily growing

economy.

Economists believe that the recession has structurally changed the pattern of

consumption/savings that could last for years

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Treatment of slowdown using monetary policy and

fiscal policy

Lending ratesRepo rate

Borrowing ratesReverse Repo rate

Cash Reserve Ratio Statutory Liquidity Ratio

Public spending

Reducing/Increasing taxes

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Fiscal policy

Fiscal policy - government adjusts its levels of spending in order to monitor

and influence a nation's economy.

During the period of recession and slow down fiscal policy employs its fiscal

instruments to bring the economy back to its balanced position.

Public spending.

Increasing the government expenditure government will push themoney into the market.

Increase in consumer spending

Fostering rapid growth in the money supply, which encourages more

spending.

Reducing the taxes.

Ex. In the year 2011, due to slowdown the road ministry has asked for Cabinet

approval to spend Rs 60,000 crore (Rs 600 billion) this fiscal year in upgrading

national highways.

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Inflation and recession

INFLATION - In the 1970s, major prices increased, particularly for energy. Government leaders concentrated on controlling inflation than on combating

recession by limiting spending, resisting tax cuts, and reining in growth in the money

supply.

This resulted in the economic slowdown due to the fact that government attempted to

control inflation at the cost of recession.

A period of high inflation, high unemployment, and huge government deficits weakenedconfidence in fiscal policy as a tool for regulating the overall pace of economic activity.

Thus monetary policy has assumed growing prominence. and also the monetary

instruments are employed by RBI.

Government increased the interest rates to tame the inflation. Besides this they also took

the other factors as spoilsports.

lower index of industrial production (IIP) higher fiscal deficit

widening current account deficit,

weak currency

reduced gross domestic product (GDP)

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As Per CITI Report - 2011

In the previous years budget, it is estimated that the tax revenues will shoot

up from 7.3% to 17.9%. And the government expenditure estimate shows thatit will around 3.4% from 10.2%.

When the market is not conductive to such disinvestments and in the absence

of deregulation in diesel and cooking oils there will be a mounting loss for the

oil companies.

It is assumed that if government continue with the subsidy sharing it will share50% of the total losses of the oil companies and the GDP will thus boost up by

0.8%. But the government has not budgeted for this scenario.

The bottom-line is that the deficit is likely to widen to anywhere between 5.1%

and 5.8% of the GDP in the current fiscal depending on the extent of the

payout of oil subsidies.

The slowdown could be seen via decreasing rate of GDP. It slowed to 6.9%

compared to 7.7%. This was clearly due to the impact of fiscal odds, which is

the slowdown in domestic investments.

One reason could be tightening of the monetary policy to bring inflation under

control. There is a hold up of investments and the slow structural reform

implementation. This indicates that there is a more uncertain global backdrop.

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Now government has increased the limit for foreign direct investment

(FDI) in single brand retail.

Government is now aimed at economic reforms and thus steps ahead to

liberalize FDI in the retail sector through the Indian parliament.

There are also certain pressure points that India was listed to be one of the

worst performing markets among the emerging economies.

There is a sharp fall in rupee in the end of year 2011, declining

profitability of the corporate, leveraged balance sheets.

Thus there is an economic slowdown and RBI has to take some measures

to control this. It started cutting rates to boost the economy.

Inflation rate was 9.11% in the month of November 2011 and thus it

clearly shows that the growth is decelerating.

Currently, both inflation and inflationary expectations are within RBIs

comfort level.

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Thank You!!!