RECESSION

This is somewhat similar to the phase of ‘depression’ — we may call it a mild form of depression — fatal for economies as this may lead to depression if not handled with care and in time. The financial crises which followed the US ‘sub-prime crisis’ in almost the whole Euro-American economies has basically brought in ‘severe recessionary’ trends there. Major traits of recession, to a great extent, are similar to that of ‘depression’ [except the point (iv) of the Depression, discussed earlier]—may be summed up as follows:

(i) there is a general fall in demand as economic activities takes a downturn;

(ii) inflation remains lower or/and shows further signs of falling down;

(iii) emloyment rate falls/unemployment rate grows;

(iv) Industries resort to ‘price cuts’ to sustain their business.

In the financial year 1996–97, the Indian economy was taken up by the cycle of recession—basically due to a general downturn in domestic as well as foreign demands, initiated by the South East Asian Currency Crisis of mid- 1990s.82 The whole plan of economic reforms in India was derailed and it was only by the end of 2001–02 that the economy was able to recover. What may a government do to rescue the economy from the phase of recession? The usual remedies are given below:

(i) Direct and indirect taxes should be cut down, so that the consumers have higher disposable incomes (income after paying direct tax, i.e., income

tax) on the one hand and the goods should become cheaper on the other hand, thus there is hope that the demand might pick up.

(ii) The burden of direct taxes, especially the income tax, divdend tax, interest tax are slashed to enhance the disposable income (i.e, income after direct tax payment)—

(iii) Salaries and wages should be revised by the government to encourage general spending by the consumers (as the Government of India implemented the recommendations of the fifth pay commission without much deliberation in 1996–97).

(iv) Indirect taxes such as custom duty, excise duty (cenvat), sales tax, etc., should be cut down so that produced goods reach the market at cheaper prices.

(v) The government usually goes on to follow a cheap money supply policy by slashing down interest rates across the board and the lending procedure is also liberalised.

(vi) Tax breaks are announced for new investments in the productive areas, etc.

All the above-given measures were taken up by the United Front Government in 1996–97 to pull the economy out of the menace of the recession.83 The forthcoming government took several other such measures by the end of 1998–99 onwards (the NDA Government). Ultimately, the measures taken up by the governments acompanied by a general recovery in the world economy, the Indian economy started recovering from the bout of recession. Many experts had already predicted a possibility of depression with a zero per cent rate of inflation.84 Although this did not happen.85‌‌