Lata Moni Das
(latadas2020@gmail.com)
Seeing the economy of the developed countries in gloomy and uncertain conditions, many experts have been fuelling fear that global recession is just about to start in India too. Long-term disruptions in supply chains caused by the war in Russia and Ukraine have had a significant impact on the world economy. For the past few months, the US economy has been declining significantly and spreading the fear of recession throughout the country. Moreover, Americans are feeling financially burdened by higher gas and rent prices. A recent statement from Wall mart says that people are choosing low-margin items over regularly used products that they used to buy and putting fewer items in the cart moreover rising inflation to 9.1% in June, is the highest in 41 years which cannot be ignored. Is the US economy officially headed towards recession? Is any shock to the USA economy likely to affect the rest of the world?
European nations are almost entering a recession due to the increased price of energy. Russia's decision not to resume gas supplies until western sanctions are lifted. According to the Bank of England, UK Inflation could peak at 13% this winter and remain high throughout 2023. Due to the possible recession of the US, the UK, and numerous other countries, the IMF predicts that Indian growth will also slow down. 'Nomura' and 'World Bank' have downgraded India's GDP growth.
How much Indian economy is showing resilience amidst the fear of recession and consequences of the Ukraine-Russia war? If we see data released by the Ministry of Statistics and Program Implementation (MOSPI), there has been a growth of 26.7% in the nominal GDP or GDP at current prices in Q1 2022-23, as opposed to 32.4% growth in Q1 2021-22. In addition to having a well-capitalized financial system and enough food grains, India also has adequate international reserves. RBI's steps in hiking the repo rate by 50 basis points to 5.40 per cent to contain inflation are welcomed. The falling value of the rupee against the dollar and high commodity prices, geopolitical issues, and restrictions on exports are of course widening the trade deficit. It is also believed that the rupee's depreciation will increase export competitiveness. Economists also say that fall in oil global prices is expected to reduce the trade deficit. Moreover, India's investments in Russia's energy and its relationship would go long way to secure energy demand whereas the rest of the world is at the risk of recession for increased oil and gas prices. Buying from Russia in rupee means less outflow of the dollar. Importing oil from Russia at discounted prices is not likely to affect the US-INDIA relationship. USA Needs India's support to challenge Chain's rising power as a global power and also it plays an important role in 'QUAD' and INDO –PACIFIC strategy and USA cannot succeed without India.
Russia further offers cheaper oil to India but in return, India has to decline the price cap proposal of G7 countries. India will weigh its options in the coming days. As oil prices fall, the fear of recession in the market will diminish and it will also be beneficial for the equity market. When oil prices fall, raw materials will be cheaper and therefore profits will be above average.
Despite concerns about rising inflation around the world, Indian jobseekers are not adversely impacted by rising costs; with six out of ten saying they have not experienced any negative effects. The labour market is showing a growth opportunity in India. 54% of companies are planning to hire in the next three months. Positive sentiment is showing in hiring in the sectors like banking, finance, insurance, restaurants & hotels and manufacturing and the real sector. After Brazil, the manpower group employment outlook survey' says India has the strongest net employment outlook for December in the Asia Pacific region. Even though the Indian IT market cannot be much unaffected by the US recession, the sector is projected to have strong hiring intentions. According to the Union Finance Minister in a recent Rajya Sabha session, India's macroeconomic fundamentals are perfect, so there's no reason to be concerned about recession or stagflation. Therefore, the Indian IT market is unlikely to fall with the fall of the US IT market.
Despite the global economic slowdown, it is expected India's economy won't be impacted by it due to the policymaking in place to control inflation. Although the inflation rate is 7% which seems high it is much lower when compared with developed countries like the USA and China so the economy is growing as well. India has taken over the UK's position in the list of the world's largest economies. If we look at our neighbouring countries, after Sri Lanka, Pakistan is under severe debt pressure from Chinese loans with high inflation, and Nepal is also seeing a financial crisis. Bangladesh and Laos realized the debt trap diplomacy policy of China in the name of BRI initiation and Bangladesh asking more loans from multilateral agencies to meet the crisis. The Chinese economy is also slowing down due to Covid zero policy of lockdowns, housing market collapse, and weak demand both at home and overseas.
Amidst the possible fear of global recession, RBI is relaxing us by stating that
rupee's fall against the dollar in India is still in a better position as compared to other global currencies or its peers. The Central bank working to control jerky movement and has a plan to make the rupee experience less depreciation. India's banking system is in a better position. Along with the better macroeconomic system in the country and change in GST rates are found generated revenues. PMI rose at the highest pace in eight months indicating a growing economy. The process to bring retail inflation below 7% is on. The external debt to GDP ratio declined to 19.9% at the end of March 2022 and from 21.2% at the end of March 2021 is a positive indicator of a growing economy. The National Statistical Office (NSO) reported India's economic growth grew by 13.5% in the first quarter of fiscal 2022-23, up from 4.1% in the final quarter of fiscal 2021-22.
The global economy could suffer a significant slowdown again depending on the length of the Russia-Ukraine war but India will not enter into a recession. Historically, India has bounced back well after every US recession because a recession in the US may cause the crude price to fall, which will be a blessing for India. It is also found that each time International organizations like 'IMF' and 'world bank estimate India's downgrade growth, India's economy is noticed to remain the fastest growing economy. The Indian economy may become the third largest by 2030, looking ahead.