n lation and     siness     le     7.27
                 capital, lower savings, falling standard of      (v) if the government fails to rescue the
                 living, creation of a sellers’ market.                  economy from the phase of recession, the
           The phase of recovery is considered good for                  dangerous stage of depression remains
     the economy and it reaches the stage of boom which                  the logical follow up;
     is considered better. But the boom has its negative         (vi) the rate of inflation always remains
     side also. Boom is usually followed by price rise.81                at lower levels—discouraging new
     As a boom is a strong upward fluctuation in an                      investments and lending.
     economy, the supply-side pattern of the economy
     starts lagging behind the pace of the accelerated           recessIon
     aggregate demand.82 But the dilemma of recovery
     puts every economy on the path to boom—this             This is somewhat similar to the phase of ‘depression’
     has been the experience in the developed world          — we may call it a mild form of depression —
     during the 1990s, especially in the US economy.         fatal for economies as this may lead to depression
     The same scenario developed in India after the          if not handled with care and in time. The financial
     economy recovered from the recessionary period          crises which followed the US ‘sub-prime crisis’ in
     of 1996–97 by the year 2002–03 when the rate            almost the whole Euro-American economies has
     of inflation peaked to almost 8 per cent for a few      basically brought in ‘severe recessionary’ trends
     months. Majority of the experts felt that Indian        there. Major traits of recession, to a great extent,
     economy at that time was passing through a phase        are similar to that of ‘depression’ [except the point
     of boom and we have seen how the government             (iv) of the Depression, discussed earlier]—may be
     has been facing difficulty in containing inflation      summed up as follows:
     around the 5 per cent mark. Even the government                (i) there is a general fall in demand as
     accepted that the economy was over-heating by
                                                                         economic activities takes a downturn;
     mid-2007. The symptoms of overheating are as
     follows:                                                     (ii) inflation remains lower or/and shows
                                                                         further signs of falling down;
           (i) There is a downturn in the aggregate
                 demand on overall fall in the demand;           (iii) employment rate falls/unemployment
                                                                         rate grows;
          (ii) as demand falls, the level of production
                 (output) in the economy also falls;             (iv) Industries resort to ‘price cuts’ to sustain
         (iii) as producers cut down their production                    their business.
                 levels, new employment opportunities are          In the financial year 1996–97, the Indian
                 not created—thus employment growth          economy was taken up by the cycle of recession—
                 rate falls;                                 basically due to a general downturn in domestic
         (iv) as demand keeps on falling, usually            as well as foreign demands, initiated by the South
                 producers start cutting down their labour   East Asian Currency Crisis of mid-1990s.83 The
                 force to adjust their overhead expenditure  whole plan of economic reforms in India was
                 and the cost of production (labour-cut      derailed and it was only by the end of 2001–02
                 is not ‘forced’ here but, ‘voluntary’)—     that the economy was able to recover. What may
                 resulting in increase in the unemployment   a government do to rescue the economy from the
                 rate;                                       phase of recession? The usual remedies are given
       81.    Samuelson and Nordhaus, op.cit. pp. 680–84.
       82.    Stiglitz and Walsh, op.cit. pp. 495–796.          83.    Economic Survey, 1996–97, MoF, GoI, N. Delhi.