The Recession of 2008-

2009: How Painful Will

It Be?

Made by – Saurabh Gupta

Bcom vocational (insurance 2nd year)
 Recession
 What is Recession?
In economics, the term recession generally describes the
reduction of a country's Gross Domestic Product (GDP) for at
least two quarters. In the other words, recession is reduction in
economic activities in the country.
Recession and its impacts on insurance sector in
India.
 Effects of Recessions
1. Credit crunches Banks may suddenly stop or slows down lending activity
that means many persons might not purchase any sort of properties which
might leads to reduction in sale of many fire insurance policies.

2. Reduction in savings Recession directly effects the income of the person

which in result decrease the amount of saving and that leads to reduction in
sale of insurance policies.

3. Unemployment when a person is available to work and currently seeking

work, but the person is without work. When the person does not have
employment then he/she is not able to save which badly effects insurance
sector.
4. Early entrants are not getting jobs.
5. Companies are closing.
6. Sales are not picking up.
7. Suddenly cash has evaporated from the market.
8. Profitability is seriously hit.
Investments in india in different types of policies of
LIC and other insurance companies.

(In billions.)
$30

$25

$20

$15

$10

$5

$0
'96 '97 '98 '99 '00 '01 '02 '03 '04

Source:- IRDA
Savings Rate in india
6.0%

5.0%

4.0%

3.0%

2.0% July 2008:

1.2%
1.0%

0.0%
J J A S O N D J F M A M J J A S O N D J F M A M* J* J

2007 2008 2009

Source: Commerce Department, Bureau of Economic Analysis
 REDUCTION IN SALES OF INSURANCE SECTOR
Total retail sales in billions of dollars, seasonally adjusted.

$400

$380

$360

$340
Aug. 2008:
$320 $381.2 billion

$300
A S O N D J F M A M J J A

2008 2009
Source: IRDA
REDUCTION IN SALE OF ULIP POLICIES

106

Aug. 2008:
100.8
104

102

100
A S O N D J F M A M J J A S O N D J F M A M J J A

2007 2008 2009

Source: IRDA
 Sales of new insurance policies.

1,200

1,100 July 2008:

515,000
1,000

900

800

700

600

500
2006 2007 2008

Source: TIMES OF INDIA

Percentage change in sale of new
policies.
12%

10%

8%

6%

4%

2%

0%

-2% 0
2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q

2004 2005 2006 2007 2008

Deficit in Indian Insurance Trade

$70
$60
$50
$40
$30
July 2008:
$20 $62.2 billion
$10
$0
J A S O N D J F M A M J J

2007 2008
Source: Economic times
Consumer Confidence Index

110

100 Aug. 2008:

56.9
90

80

70

60

50

40
Aug Sept Oct Nov Dec Jan Feb Mar Apr May June July Aug

2007 2008
Source: Hindustan times
 INDIA’S Jobless Rate
In percent, seasonally adjusted:
6.5%

6.0%

5.5%

5.0%

4.5%
A S O N D J F M A M J J A

2008 2009

Source:Department of Labor
Increament in Unemployment Rate in india
due to recession.
8.5%

7.5%

6.5%

5.5%

4.5%

3.5%
June June June June
2005 2006 2007 2008

Source: Indian Workforce Commission

 How to come out of Recession?

It is unhealthy for any nation to be in Recession;

Government will take certain countermeasures to eliminate
or reduce the effect of recession for turnaround;

Important Point : Today, it is a market Economy,

Producers can produce and can sell at their prices and
Consumers;can decide to buy or not…

Here both Producers and consumers are free to act without

forced action.
 Basic Don’ts
 Do not take too much vacation.
 Do not ask for promotion. Don’t emphasize(ask) for huge salary
increase. If you ask, you may soon not have a job. Remember, there
are people available with better skills at lower salary levels.
 Do not complain.
 Do not waste time gossiping.
 Don’t resist a transfer.
 Don’t resist travel.
 Don’t resist a salary cut if done with valid reasons.
 Don’t resist extra time at office if needed.
 Don’t change jobs in this market. It is too risky.
 Basic Do’s
 Be punctual to office.
 Ensure you pick up new skills.
 Do something innovative.
 Take training programs.
 Always be engaged & productive.
 Ensure you deliver as per deadlines.
 Organize team meeting to improve productivity.
 Ensure that you contribute to knowledge forums etc..
 Work doubly hard and save money for your company.
 Your boss is always right and is the best (During recession
or no recession).
 Daily Expenses
 Take a list of your expenses.
 Tick “Need to have” vs. “Nice to have”
 Knock off all “Nice to have expenses” – Right Now !
 Assuming you didn’t have a job – Plan for cash to survive
for 24 months. considering, this recession will take at least
24 months to come out !
 Government Plans against the Recession?
Hence, Government does not have direct control on Producers’ &
the Consumers’ behavior; But, they can influence millions of
Producers &Consumers with Government’s policies;

Government has 2 plans

Fiscal Policies Monetary Policies

(By Govt.) (By RBI)

Government influences the RBI manipulates

economy by changing how the available supply of
it (Government) spends money in the country
and collects money
 Govt control through RBI
Repo Rate: Repo rate is the rate at which the banks can borrow money
from a central bank of the country in order to avoid shortage of funds.
It is also a financial & economic tool in the hands of government to
control the availability of money supply in the market by altering the
repo rate from time to time.Current repo rate is 5.0 %.

Reverse Repo Rate :Reverse Repo rate is the rate at which Reserve Bank
of India (RBI) borrows money from banks. Banks are always happy to
lend money to RBI since their money are in safe hands with a good
interest. Current rate is 3.0 %.

CRR :Cash Reserve Ratio is the amount of money that the banks
have to necessarily keep with the RBI.The RBI pays the interest
on the amount kept with it. Current CRR rate is 5.0 %.
 Government Fiscal Policies
FiscalGovernment influences the economy by changin
how Government spends and collects money
Policies
1] Tax cuts for More money
businesses or available for
for individuals spending

2] More spending Individuals get Demand picks

by Govt. to salary and spend up; Market
create jobs money can recover;
3] Automatic
Some income to
fiscal policy;
unemployed
Unemployment
people to spend
Insurance
 Government Monetary Policies
Monetary Government manipulates the available supply
Policiesof money in the country

More money
1] Reduce CRR
available for bank
for banks
to give loans
Demand picks
up; Market
2] Lower the
Individuals take
can recover;
Repo & Reserve
more loan
repo rates`
 What about India in global market crises

Most of the developing Currently, GDP Growth

economies like China, Slow Down Rate Down; But,
India; Stage; Not yet Still expected to be
in Recession Around 6% in India

Most of the developed

economies like US, Currently, GDP Growth
Japan, Germany, etc in Recession Rate Negative;
 Don’t worry
What goes down will always go up, Markets will
rebound – these tips will prepare you to be a
winner !!

HOPING THIS TIME RECESSION VANISHES SOON SO THAT

INDIA GETS BACK TO ITS STRONGER
GDP GROWTH RATE OF 8% TO 10% .
(AS PER THE EXPERSTS OPINIONS
IT WILL LAST TILL Q3 of 2009)..
You can be updated yourself with the current economic condition through
‘Business TV-channels,News,News papers’.