What Recession ?

A friend of mine asked me to write something on recession; although I am not an authority on it but then this is just a blog so I will write.

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On using Google and reading many different sites, if one has to explain what is recession then it would be this -

"A true economic recession can only be confirmed or announced if GDP (Gross Domestic Product) growth is negative for a period of two more consecutive quarters."

What are the causes for recession? When did it start? What was the exact point is difficult to ascertain. According to one website, ‘the true starting point actually rest in the several quarters of positive but slowing growth before the recession cycle really begins. Often in a mild recession the first quarter of negative growth is followed by slight positive growth, then negative growth returns and the recession trend continues.' (recession.org)

Although the truth is there is no pattern, look at the graph given on the right. Or if the above statement is right, in that scenario the worst is not over.

Also though the two quarter theory is generally accepted but most experts do not agree on it.

Just for information, so that there is no misunderstanding. In the US it's the National Bureau of Economic Research (NBER), which announces if the country is in recession. And they use a multitude of factors before announcing that the country is in recession like unemployment, industrial output etc.

Now in India's case there is no defined authority, at least not to my knowledge.

If you are to ask me then I would say, probably RBI will announce, if there is ever such a situation. Then stock markets will crash, therefore, the Finance Minister would cry foul. So, the governor of RBI will file a case and the law ministry will give its own interpretation. I think after the first announcement and the denial it will be another quarter when the Supreme Court will give the verdict, "WE ARE IN RECESSION".

Now no need to panic that was just a scenario "if" there is a recession in India.

India is not in recession. Our growth has just slowed down and from IMF to the individual experts are all saying that India will see growth although a small one which can range from 2 percent to 5 per cent for the calender year 2009. Although I personally would put it between 1.5 per cent to 4 per cent at best. If it goes more than 4 we should celebrate, that we managed more than 4 when the world shrank .5 percent or more.

The last Laugh

Although I have already mentioned in my previous blog "The Satyam Misconception", that nothing will happen to Raju because the elected representatives will protect him. B will move at snails pace and there will be many roadblocks on the way. The roadblocks which our dear politicians will make.

Look at Satyam now, the company will be sold in few weeks time and government will not be responsible for it. Till then the state government will do its best to protect Raju; so far it has managed to do it. With some scolding and backing from supreme court SEBI and SFIO will manage to get some some preliminary work done. But it will not be to book the guilty or deliver justice but to show the people that work has been achieved.

To make it attractive, Govt. will pressure PSUs to give work to Satyam. Government assurance will work with some clients too and they wont desert it. The company that buys Satyam will bear the trouble form there on.

By June, election will be over, the new govt will have to deal with the recessionary or slow growth faced by others. It will be far too busy to bother, Satyam Will be a headache for some one else. The media will be busy hounding the new govt and the meltdown affect on India will claim some more business.

Raju will either get bail or will make some deal and leave India on a temporary basis at least. Since, public memory is weak, he will come back when people would have forgotten him.

So who will have the last laugh here, not the Govt, not the shareholder or any one else but our man Raju!!!