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Impact of 2011 Recession on Indian Real Estate

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Impact of 2011 Recession on Indian Real Estate

Last updated: August 12 2011
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  • Impact of 2011 Recession on Indian Real Estate

    http://economictimes.indiatimes.com/news/economy/indicators/recession-2011-2011-could-be-worse-for-india-as-us-recession-looms-large/articleshow/9522482.cms

    Recession 2011: 2011 could be worse for India as US recession looms large


    NEW DELHI: India weathered the 2008 crisis well, but there are fears that this time round the country is not even ready for a crisis of much lesser magnitude, let alone a full-blown debt default in Europe or a possible US recession.

    Weak finances, persistently high inflation and policy inertia have considerably weakened the government's position today.

    "This time our basics are weak. A domestic meltdown is expected and our resilience won't be as much as last time," said Nisha Taneja, professor of economics at ICRIER. Growth estimates are down to 7.2% in the current year, not far from 6.8% the country managed in crisis-ridden 2008-09, and every other indicator is pointing downwards.




    Contrast that with 9.3% growth on the eve of the crisis when India could do no wrong. "This time we may be on weaker foundations," chief economic advisor Kaushik Basu told Washington Post last week. Just before the crisis in 2008, the repo rate, the key rate in the economy, was 9%, which was cut quickly to stimulate demand and investments. This time round the best the Reserve Bank can do is to halt the rate increases because despite high borrowing costs consumption demand remains strong and any policy reversal risks inflation going out of hand.

    For the same reason, the government is in no position to risk a fiscal stimulus as it will stoke demand and raise inflation. The year 2007-08 began with a fiscal deficit of less than 3% of GDP. This strong fiscal position had allowed the government to announce a Rs 75,000-crore farm debt waiver and meet the generous Sixth Pay Commission award. Both of these, together with rapidly scaling up rural jobs scheme, held up demand when the financial crisis unraveled.




    Subsequently, the government was also able to cut taxes and announce other measures to stimulate demand. Although, in the current year, the fiscal deficit is budgeted at 4.7% of GDP, most experts expect the government to breach it by a good margin, with some estimates going as high as 5.5%. In such a situation, a fiscal stimulus is almost ruled out.

    "The ability to respond (globally) is very limited this time around," said Samiran Chakraborty, chief economist, Standard Chartered. "The fiscal space in India is also comparatively more constrained." Although the foreign exchange reserves are in excess of $300 billion, the balance of payments situation is weaker and the country could find it difficult to weather an export slump similar to the one in 2008, when growth turned negative for 13 straight months.

    The current account deficit is likely at over 2.7% of GDP, much higher than 1.3% in 2007-08, and foreign direct investments are not as forthcoming. The C Rangarajan-headed Prime Minister's Economic Advisory Council expects only $14 billion in inflows in the current year. Even without the crisis, things were not looking good for Indian economy. It has got much worse, though difficult to say how much. "The overall impact of the global uncertainty is difficult to predict as of now," said Pronab Sen, principal advisor to the Planning Commission.


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    This will ultimately have an impact on RE in India. Be cautious in booking large size, long duration,high price apartment projects
    </SPAN>
  • #2

    #2

    Re : Impact of 2011 Recession on Indian Real Estate

    What to do when Recession 2.0 hits India?

    Hello Readers,
    The way things are going right now, Recession 2.0 could be right around the corner. So how does the common man like you and me prepare for the recession, considering it could get much worse for us this time!!
    Follow the link below to read a simple article on this:
    Recession 2011 India. Things to do to minimize the damage
    You may like the simple points useful.
    TC

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    • #3

      #3

      Re : Impact of 2011 Recession on Indian Real Estate

      Real estate for Dummies article was very nice.

      Comment

      • #4

        #4

        Re : Impact of 2011 Recession on Indian Real Estate

        recession confirmed / just an anticipation ?

        what economic times has hinted at is possibility of another recession.need to keep watch for confirmation and anticipated duration of this recession.thanks members for sharing the advance warnings as i need 2 review my decision 2 purchase a new house in this perspective now.

        Comment

        • #5

          #5

          Re : Impact of 2011 Recession on Indian Real Estate

          http://www.thehindu.com/news/national/article2347346.ece

          U.S. crisis may hit IT sector: Pranab


          PTI Television grab of Finance Minister Pranab Mukherjee speaking in Rajya Sabha in New Delhi on Thursday.
          Union Finance Minister Pranab Mukherjee on Thursday said the information and technology (IT) industry might be affected due to the current economic crisis in the U.S., but cautioned that there was no need to press the panic button yet.
          “It is too premature to say what the final shape of the downgrading of the U.S. economy would be … there is no doubt that our IT industry may be affected,” Mr. Mukherjee said replying to a debate on the Appropriation Bill that was passed by the Rajya Sabha. Notably, Indian IT sector earns $60 billion from exports of and services, of which over 60 per cent comes from the U.S. market.
          The Finance Minister also noted that the fiscal crisis in the U.S. and Europe could have some impact on exports, though it was yet to find out how much the Indian export industry has benefited from exporting to new locations in the past two years.
          “I do not know to what extent we have been able to diversify, but till two years ago, nearly 60 per cent of our export destinations were Japan, the E.U. and United States; all three entities taken together, constituted more than 60 per cent. The macro details, as to what extent we have been able to diversify are not available right now, but it may affect them,” he said. The Finance Minister also assured MPs that he could make a statement on the issue in the current session of Parliament.
          Pointing out that domestic demand was the main strength of the Indian economy, Mr. Mukherjee said during the global slowdown in 2008, India still managed 6.8 per cent growth despite negative growth in exports for 11 consecutive months. “But still we have the growth because we generated domestic demand-driven growth scenario and that is one of the strengths of the Indian economy, which other advanced economies do not have.”

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