Recession is the result of reduction in the demand of products in the global market. Recession can also be associated with falling prices known as deflation due to lack of demand of products. Again, it could be the result of inflation or a combination of increasing prices and stagnant economic growth in the west. Indian Economy has sustained itself inspite of global recession. This is because of domestic savings and corporate earnings which are financing investments. There is low export dependence, a large consumption based and high employment which has helped sustained consumption. Banks also have sustained themselves inspite of global recession On the other hand, the fiscal house is in terrible shape. Just because domestic banks are state controlled does not mean they have low NPAs–often, they keep on reassigning credit to bad borrowers to preserve the illusion. To ensure a durable exit from the crisis, and to build foundations for sustained and broad-based growth in a globalized world, developing countries in 2010 and beyond must draw the right lessons from history.
In the current crisis, China, India, and certain other emerging-market countries are coping fairly well. These countries all had strong external balance sheets and ample room for fiscal manouvre before the crisis, which allowed them to apply countercyclical policies to combat external shocks.
They have also nurtured industries in line with their comparative advantage, which has helped them weather the storm. Indeed, comparative advantage — determined by the relative abundance of labor, natural resources, and capital endowments — is the foundation for competitiveness, which in turn underpins dynamic growth and strong fiscal and external positions. To pursue its comparative advantage and prosper in a globalized world, a country needs a price system that reflects the relative abundance of its factor endowments. Firms in such a context will have incentives to enter industries that can use their relatively abundant labour to replace relatively scarce capital, or vice versa, thereby reducing costs and enhancing competitiveness. Examples include the development of garments in Bangladesh, software outsourcing in India, and light manufacturing in China.
The world is now so far down the path of integration that turning back is no longer a viable option. We must internalize lessons from the past and focus on establishing well-functioning markets that enable developing countries fully to tap their economies' comparative advantage. As part of this process, a facilitating role for the state is desirable in developing and developed economies alike, although the appropriate role may be different depending on a country's stage of development.
Key Words – Sustained Consumption , Comparative advantage, Integration.
Recession in the West, specially the United States, is a very bad news for our country. Our companies in India have most outsourcing deals from the US. Even our exports to US have increased over the years. Exports for January have declined by 22 per cent. There is a decline in the employment market due to the recession in the West. There has been a significant drop in the new hiring which is a cause of great concern for us. Some companies have laid off their employees and there have been cut in promotions, compensation and perks of the employees. Companies in the private sector and government sector are hesitant to take up new projects. The textile, garment and handicraft industry are worse effected. There has also been a decline in the tourist inflow lately. The real estate has also a problem of tight liquidity situations, where the developers are finding it hard to raise finances.
IT industries, financial sectors, real estate...