Impact of US Recession on Indian Economy
I have seen that forecasts are being made about the recession in the US and therefore slowdown in India. Some reports even said that India is in the middle of a slowdown now. I wonder why such an exaggerated view?
There is a definitely a slowdown in the US economy. I am not sure this has turned into a recession yet.
Emerging economies (BRIC economies, Ukraine, Turkey, Argentina, and Chile etc.) are now contributing for a very large proportion of global growth. India, China and Russia alone contributed over 30% of the growth in the global economy in 2007. This is totally different from the late 1990s when the US economy had a central role in global growth. In fact the weight of the US economy in the entire global economy has been declining since 2001. At the same time the weight of the BRIC economies (Brazil, Russia, China and India) has been rising steadily.
In 1999 the US economy represented 30.91% of world GDP, and in 2007 this percentage is down to 22.4%. In 2000 the US economy accounted for an impressive 40.71% of global growth, and in 2007 this share is down to 6.43%. So there are obvious reasons for thinking that this time round the impact of any US recession will not be as acutely felt in some parts of the world.
The fact that the rupee has risen considerably is in itself an expression of the confidence levels imposed in India by foreign investors.
Interdependencies between the US economy and emerging economies like India and China has reduced considerably over the last decade. Thus, the effect may not be as drastic as would have been the case in late 1990s.
Some specific sectors like IT Enabled Services sector, Tourism sector etc may be a hit. Also due to appreciation in rupee exporters are pushing government to intervene and rate cut. But what is being forgotten is the fact that stronger rupee will cut the import bill.
If things don’t get worse than already predicted in the US housing markets, the world economy will only show a modest slow down in 2008. It follows then that India should still show substantial growth and there should still be bullish trends (a little moderated and realistic) in our stock markets.
In summary, at the macro-level, a recession in the US may bring down GDP growth, but not by much. At the micro-level, specific sectors could be affected.
For US firms, who have long looked at China as a better investment destination, this may be a good time to look at India as well. After all, 350 million people with purchasing power cannot be ignored. This is not a sales pitch for India, but only a gentle suggestion to US corporations.
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Clearly this was written before the recent news about increased inflation, fuel prices, the DLF buy back and the fall in the value of the rupee, cynics will be looking on knowingly and saying ‘told you so’. However, all economies are feeling the pinch, so why not India? Growth is still predicted so while there may be ups and downs why not feel optimistic about the long term.
You hit the nail on the head when you mention the 350 million people who are now consuming – the genie is out of the bottle and it wont go back. Progress may stall, there will be ups and downs but that is to be expected given the speed of growth to date.
While we cannot undermine the significance of US economy and it’s global impact, picturing a strong economic system in India as prone to uncle Sam’s economic slow down may not be right. The recent inflation and so called slow down is a temporary phenomina and the credit for this goes to OPEC countries. The country with about 6 months for general elections has to thrive on monetary policies and unless the new central govt establishes it’s fiscal regimes the current trend may continue and looking at our current position we should have reasons to be confident and with the nuclear deal in place , an energy secure India is beyond the controil of any global economic fluctuations at least to teh extent of GDP levels, we are talking of the new India with all it’s might on to become the world leader as it used to be in the pre-colonial era..
hello ,
why we are thinking that software industries can only the main, i think we so muck behind in the core hardware development also, as per my view government should think about the growing the hardware industries also..
Thanks
this is very fine
nice idea about this topic and satisfied with this
After reading the whole article it is very clear that this recession the result of over confidence of American economy that nobody can rule over american economy.
obviously,this article is very old.however,it is still very informative and helpful as it clearly states the impact of recession on India.
u didt tell us abt the impact of recession on our indian economy what is the impact on our IT sector how they effect IT sector which is important for mba students and also for an individual knowledge pt of view.
i wanna knw tat shall i use this as ma project is abt world economic recession and india growth is this metter is useful for me or nt