What is a Recession?
Going by the language of the textbook, Recession is a downside in the economy which follows at least two-quarters of the downfall in countries’ gross domestic products. It impacts the economy in multiple ways and affects almost all the elements of the economy. Recession leads to an economic crisis that results in job losses, liquidity crunch, a fall in business profits, etc.
Looking back on the last decade
The years of 2007, 2008 and 2009 are known for one of the historic economic downfalls which are often referred to as ‘The Great Recession’. It was a period when the economy had declined drastically leaving all sectors in shallows. The crisis broke out and it affected all the countries of the world bringing the whole economy to a halt. This recession was majorly caused by a housing bubble where the prices went up by huge numbers thus creating a gap in the economy.
As a result of this, people were unable to pay back their loan amounts. Also, this leads to the selling of various financial instruments whose values had fallen drastically. This led to a scarcity in fundamental resources of the market and eventually led to the fall of the financial sector of the United States of America thus causing a liquidity crunch and hence impacting the whole world. It resulted in a decline of the real world’s per capita gross domestic product (GDP), thus making it a huge deal for all nations.
This global fiasco did not spare India too. India’s economy was already declining because of a failed effort by the Reserve Bank of India to stabilize the economy and the great recession further accelerated the rate of decline. India had various foreign investments’ bottleneck which was making the inflow of cash much more difficult. Other factors that were contributing to the downfall were stringent export-import policies, poor infrastructure, inadequate access to credit, etc.
The financial sector of India was not hugely impacted as it was far away from the global ecosystem. There was not enough exposure to have a direct impact huge enough to threaten the economy. Except for financial securities, India too was dependent on the world. Therefore, exports dropped drastically.
This also led to the falling of the foreign exchange rates, which further impacted the Indian Economy. The trade had almost collapsed. The oil market was down, thus created a demand-supply imbalance which further contributed to spiking the oil prices up. Both exporting and importing had become nil because of the absence of US dollars from the market. All of this made the Indian economy disruptive and unstable.
Going mid-way: the period after the recession
Coming out of the recession phase is not an easy task but the economy has been structured in such a way that it naturally corrects itself. Though slow, it is an inevitable process. Also, the Government puts its best foot forward to take the people out of such a sticky situation.
The Government started by reframing various international trade and exchange policies with the hope that India will export better and stay even more connected with the world. India started to grow and on contrary to the other nations, its GDP had grown to almost 8%. India became a lucrative market for foreign investments and many companies started to expand in the Indian market.
India came out of the cocoon of the great depression with the help of its dynamic environment which constituted of productive growth, a young and goal-driven population, and more relaxed policies. India from then on fueled its growth and took off to new heights.
2019- Is the recession coming back?
The Indian economy is losing momentum. India is facing a demand-based problem where enough demand is not being created by the consumer side of the economy. Also, the policies are going through a transformation which is not working in favor of the direct consumers.
The growth rate has been constantly falling for four consecutive decades now. The sales of various products are slumping especially in the case of the automotive segment- The car sales have gone down to almost nil which in turn is leading to vacant production facilities which further results in loss of jobs.
The economists are demanding the intervention of Government on the issues of the declining economy. GDP forecasts have dropped sharply thus alarming the nation of an upcoming economic crisis. Consumption demand for regular consumer goods has fallen to a great extent.
The back to back structural reforms like demonetization and implementation of goods and services tax have failed to deliver results thus failing their very own purposes. After the formulation of the new budget, the tax structures have been revisited and revised which has eventually challenged foreign capital inflows and investment sentiments. The Private investment sector is at an all-time low.
The government is trying to take everything into its own hands thus disrupting the balance between the private and public, hence impacting the whole economy. Due to this weighing down of the swing, there are no jobs in the market. This slowdown has not come off as a shock. The financial sector is continuously falling because of the huge amount of bad loans and people losing their faith in the banking institution. Demonetization impacted the demand-supply chains, agriculture, manufacturing and almost all the other sectors as the money which was forced to come amount of the chain was not equally injected in the form of new banknotes.
Revenue from taxes is falling. India is crying out loud for financial incentives so that the private sector can be efficiently revived. Programs like ‘Make in India’, ‘Skill India’, etc. appear fascinating but have still not proved themselves in the light of inadequate funding and lack of skilled labor. India right now is on the verge of an economic breakdown.
The picture right now doesn’t seem to be a good one but it is still not known if this recession is cyclical or is a breakdown of the economy. India will have to give in its best if it wants to come out of this vicious cycle of recession.
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