While economists discuss the impact of a likely recession in the US economy on the rest of the world, decision makers worldwide are looking at means to tide over the slowdown.

The US market has been consuming about 20.6 million barrels of oil a day (India and China use 2.6 million barrels and 6.9 million, respectively). From services to energy and to food, the US has been dependent on other countries to a great extent.

Currently, China leads others in the consumption of iron, zinc and steel. India is also entering the big consumers' league.

Homemade crisis in US

The initial ripples of US recession were seen during the days of booming real estate industry. Financial institutions then began 'awarding' home loans and people purchased homes. But the boom soon boomeranged.

Many customers were given a higher loan amount than what was permissible by their credit rank. As the housing sector boomed, banks had revised interest rates beyond the repaying capacity of many customers. (The prices of houses in the US surged by 124 per cent. The arrears of US households as a percentile of their incomes stood at 130 per cent last year vis-à-vis 100 per cent a decade ago).

The market price of houses nose-dived as the real estate bubble popped. Many realized that the loan amount could not be repaid even after selling their homes against which loans were sanctioned.

Banks slashed credits; still people lost money. The sub-prime mortgage crisis gradually seeped into other sectors as well.

The sub-prime crisis has caused alarm with about 8533 banks in the United States that were insured by the FDIC (Federal Deposit Insurance Corporation) registered a slide of 85 per cent in profit margins to $5.8 billion from $35.2 billion.

Indian banking entities that have entered the US shores have sported dismal performances with ICICI Bank posting a loss of $263 million in investment exposure and loan sections.

Would IT be affected?

Anish Zaveri, associate director, KPMG Advisory, says, "The sub prime crisis is definitely going to have a short term impact on IT because the large deals coming in would take a while because of what is happening in the US."

He adds, "As far as the Indian IT company goes, my feeling is that those big organizations (the top five IT companies) who had a good last year second half between June-July to December 2007 with large deals would have a lot of work that is coming in as their pipeline is flowing in."

According to Zaveri, these large deals would ensure healthy workflow for the next 18 months or so.

Abandon USD?

One of the key points analysts moot is to rethink the idea of abandoning the US-dollar as the world's reserve currency. This holds particularly true for oil and natural gas producing countries.

Countries like Russia and Kuwait have already reshuffled their currency baskets in the past.

"Such decisions cannot be taken within weeks or months, they require responsible, long-term action. I am not so sure whether there is still time left to act without provoking further panic and thereby driving the US-dollar down. Sooner or later, the US will depreciate its currency," opines Dr. Karin Kneissl, a Vienna-based freelance journalist and energy analyst.

But optimists opine that the US economy would recover thanks to its flexible nature.

Dr. Kneissl, however, does not believe so. "My estimate is that we are just about to enter a major economic crisis on a global level." She believes that governments would have to intervene to create demand.

The question is: which all governments have the leverage to act? Furthermore, governments, financial institutions and the corporate world have often recruited the wrong persons.

An MBA is not a guarantee for sound economic knowledge; often the university, which he attended, is more important that the skills he possesses.

Legislations on financial transaction has been demanded by many responsible voices in the past, but not heeded.

Would inorganic route be explored?

Every country seems to be going through the vicious cycle of boom and bust. India is in the housing boom phase and a bust is probably just around the corner. Economic liberalization has provided wealth on an individual level but has also further widened the divide between the haves and have-nots.

Sub-prime crisis in the US has definitely affected the IT companies.

Zaveri feels that at the corporate level, IT and BPO companies, in the coming quarters are likely to explore the inorganic route.

"With the US slowdown, the overseas companies are very attractive in the pricing point of view because the pricing have gone down substantially. You can also get a profit-making company locally available because the valuation has gone down in India also substantially than what they were. So, inorganic growth would happen in both the ways."

At the corporate level, companies are increasingly bolstering the brand building exercises that are related to their employee engagement.

"We are increasingly making efforts to improve our employee engagement and operational efficiencies and branding related to what we are doing related to our employees," says Makarand Teje, president and CEO of AppLabs.

"We have grown by about 72 per cent in the last four years and even in our plans for the next year, we haven't really altered our ambition or estimates for FY 2008-'09."

Trickle down effect

Analysts opine that the Tier I companies would be feeling the heat of the recession. The effect would trickle down wherein the implications are felt more by big companies in the beginning, the mid-level enterprises and then down to the lower segment.

Kunal Pandya, founder and CEO of Metrojoint.com, states, "I think the US recession will mainly affect large corporations like Infosys and Wipro who heavily depend on the US market, and even a slight policy change in either countries can affect them. For medium to small-scale industries and companies, I don't think it is or it will affect that much. Yes, but when US recession starts affecting the dollar value vs. rupee, then it's an alarming time for everybody doing business overseas."

Not long ago, attrition was a major cause of concern for companies, but not anymore.

"At the senior level, there is a sudden slowdown or organizations are not recruiting at the senior level unless there is an absolute necessity and the person they are planning to take is really good," says Zaveri.

"A year or so back, people at the middle and senior level (7-10 years of experience in IT) were really hot cakes and organizations that got such people from their competitors were ready to take them and keep them," he points out.

Zaveri, however, feels companies will recruit at the lower levels. "At the junior level, companies who have a healthy pipeline and have contracts last year and have aggressively closed contracts would continue to recruit at different levels."

The bench strength of companies has started to come down drastically as companies are thinking out of the box to improve their bottom lines.

Wider options

"Students coming out of colleges would always have offer on hands and I don't see an issue at the start up level. India has so many options right now as there are so many industries that are blooming right now," Zaveri says.

Fresh graduates now have more options from non-IT sectors such as construction, housing, retail and real estate. Whilst at the highest level, a lot of mergers and acquisitions are expected in the coming quarters.

Employee attrition would come down even as employees continue to remain loyal to their companies and graduates would have many sectors looking to recruit them.