Impact of Recession on India: a Sector-wise Analysis

Abstract

The unstoppable Indian economy riding at the back of record highest economic growth has finally encountered a slowdown. Due to integration of the Indian economy with the world economy, the Indian economy was likely to be hit by the recession started in the US economy in the period of 2008-09. The Indian companies have most outsourcing deals from the US and even Indian exports to US have increased over the years. But the latest reports indicate that exports for January 2009 have declined by 22%. There is a decline in employment all over the globe due to the recession in the west. Some companies have laid off their employees and there have been cut in promotions, compensations and perks of the employees. There has been a significant drop in the new hiring which is a cause of great concerns for the Indians. Companies in the private sector and government sector are hesitant to take up new projects and these are working on existing projects only. After discussing the integration of the Indian Economy with the global economy, the main objective of the research has been to study the performance of different sectors of the Indian economy and to provide a comprehensive sector-wise scenario to elucidate the weak as well as strong sectors of the economy in the phase of recession. The secondary data of the production of the different sectors of the economy has been used. The growth of various heads of production has been analyzed with the help of trend rate of growth. To study the factors causing recession, multiple regression model has been used by taking GDP at constant prices as dependent variable and FDI, FII & IT sector production as the independent variables. The year-wise growth rates have shown the true picture of recession in the different sectors of the Indian economy, whereby most of the sectors reported a slowdown in the recessionary period. So it can be concluded from the above analysis that recession had its impact on Indian economy, but the impact has been slower, as most of the sectors reported higher growth in period II of the analyses. Regarding the factors influencing GDP growth, the regression results highlight that the predictors of the model are: IT Sector, FII and FDI. These explain 99.10 percent of the variation.