Question

Discuss the implications that the 2008 recession ( that originated in the US) had on INDIA

1. Elaborate very briefly on the specific aspects of the event that you are going to examine. Assemble your facts and your evidence. What policies or other factors which helped precipitate the situation in INDIA

2. Map the event into a “shock” and trace the shock in one of the model diagrams you learned, discussing its macroeconomic consequences within the framework chosen. You may assume that the economy starts off in both short-run and long-run equilibrium.

3. Assess the government policy response, showing what the end impact was. Describe briefly what was actually done in practice, then represent it on a diagram.

(Step 1 – Place the macroeconomy in short- and long-run equilibrium.

Step 2 – Demonstrate the impact of the macroeconomic shock on the economy in the short run.

Step 3 – Demonstrate the impact of the policy response on the macroeconomy in the short-run.

Step 4 – Show the long run equilibrium of the economy after the initial shock and the policy response.

Trace and explain this path on a diagram summarizing one of the IS-LM models

4. Discuss the implications of the crisis for one set of individuals (for instance, households in that situation, a certain age group of the population, etc., certain groups of workers) and businesses (a specific firm or sector, your business sector or firm, etc.)

Answer 1

Impact of recession on India

1. The decline in export.
2. Share market crash. Sensex fell from 21000 in January 2008 to 8000 points in October 2008.
3. Job cut and wage cut in IT and BPO industry.
4. Heavy losses to real estate sector due to reduced demand for property.
5. The industrial sector got affected due to lack of investors.
6. The banking sector faced difficulty in collecting their loans.
7. There was a decline in the export of agriculture products.
8. Due to the depreciation of dollar the exporter were making limited profits and were forced to increase the price of export.
9. The imports were also affected due to price change.
10. Due to the global impact of the recession, the foreign direct investment was affected especially those which came from the US.

The economic growth of the country was affected but India was not that deeply affected as like the US.

Corrective measure :

1. Reserve Bank of India neutralises the outflow of FII money by unwinding the market.
2. Increased public saving.
3. Reduce in taxation like excise and custom duties.
4. Reduced prices of real estate.

The impact on workers :

  The wokers of IT sector and BPO sector were largely affected by recession as due to the there international operations.

There were massive job cuts resulting in unemployment and wage cut resulting reduced household savings.