GLOBAL RECESSION GENESIS AND ITS IMPLICATION
Global recession has become a great menace throughout the world presently and no country has remained unaffected from it. Countries after countries whether USA, UK or India are turning out to be victims to it.
Recession is that economic condition in which all economic activities of different sectors like agriculture. Industries, trade and commerce, aviation, hoteling, stock market operation etc. slows down or come to a standstill. This is a dangerous situation of economy due to slow down in demand of various sectors production; employment and income are very seriously affected. Economists believe that recessions are worse than inflation because while inflation affects only poors badly, recession impacts both producers and consumers alike.
The genesis/origin of global recession can be traced to sub-prime crisis which started in USA about an year ago. The banks in USA started lending credit to even these borrowers whose credit worthiness was suspect. As per banking norms they accepted residential proof property and apartments in securities from borrower and extended then credit. When property prices started increasing, the value of there pledged mortgaged assets also increased and the banks further granted more credit on request from such borrowers. But the phase of rising price of such property assets soon came to an end; prices started tumbling which finally resulted in crash in property prices. The anxious and worried banks started calling back their loans, but failed to do so because builders were unable to sell these properties to general public because prices were very high. To recover whatever dues they had, USA bank started selling/auctioning these assets which further intensified the panic. One after other the dozens of American financial institution like Lehman Brother, Merril Lynch, Barring etc. were reduced to a state of bankruptcy. In the meanwhile, the US Federal Reserve reduced the interest rate willing from 5% to 2%, yet few investors in America were too willing to put their money in business. Very soon this fear and panic spreaded to other European countries and also to India.
Back home in India, implication of global recession are many exports have dried up due to fall in global demand, foreign investment in India stock market is being withdrawn rapidly ( In the month of October alone FII withdrew $ 12 billion from Indian stock markets ). Indian currency has depreciated to and all time low of Rs 50 per dollars.
RBI has reduced CRR from 9% to 6%, SLR by 1% and repo-rate 15 to infuse liquidity in the system. It is expected that these measures will infuse additional liquidity worth Rupees 2, 00,000 crore in economic system. Now GDP forecast has been reduced from 9% to 7.5% per annum.
Recession in not a recent phenomenon. The world has seen the great depression of 1929 which lasted for 4 years! It can be definitely fought by creating more demand through public investment by the government. Only government is capable of investing huge amount of money under welfare motive. Under these trying times. Let us hope it materializes sooner then later.
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