Global Business Environment - Assignment Example

This report will look at the different measures a country can take in such instances. There is essentially no simple strategy alone to prevent recession in a country. There are a number of factor at play which further complicates the problem of recession in a country. Like after world economic crisis in 2008, country like India faced many challenges with respect to its economic policies. India has high inflation rate along with soaring high interest rate. Keeping in mind the strong fundamentals in India, RBI took a number of measures to control recession in India.

RBI plays a significant role by controlling and monitoring the lending rates of scheduled commercial banks. The inflation rate in any economy is dependent on the availability of goods and services. RBI uses its monetary and credit tools to maintain the price stability in the economy and thus support the economic growth in the economy. RBI being the central bank of India, monitors, regulates and controls the entire financial system. RBI through its monetary policy regulates the issue of bank notes so as to maintain proper liquidity in the system (Schwartz, 2010, p. 7). The monetary policy adopted by RBI can be either expansionary or contractionary in nature.

RBI uses expansionary policy during deep recession. When RBI finds excess liquidity in the system, RBI uses several monitory instruments like Cash reserve ratio, Statutory Liquidity Ratio, Repo Rate, Reverse Repo rate to adjust liquidity in the economy. During deep recession, RBI needs to inject liquidity in the system so that money can flow in the system and demand improves and consequently GDP improves. For that RBI can reduce Cash reserve ratio or Statutory Liquidity Ratio. This will inject more cash in the hands of Bank which Banks can lend to the customers and inject liquidity in the system (Hershey, 2004, p. 13). The main priority should be given to small scale industries as they are the main employment