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India Will Not Be Impacted By US Recession

1 July 2009 No Comment

Almost everybody today seems to be discussing about the US Recessionary trend and its impact on emerging countries, more particularly India.

Economists, Industrialists and the common man on the streets seem to have been horrified by the very thought of recession in India and that too due to US. Decreasing industrial production, inflation, decreasing job opportunities, cost cutting, reducing purchasing power parity, et al are the aspects discussed among them through every possible mode like articles, talks & walks and places like washrooms, canteens, etc.

But to me the reality is very different! Yes……

India will not be impacted largely by the US recession, simply because India is not which it was in the ’80s-’90s.

Although it will be immature on my part to say that India will not be impacted by the US recession at all, but the truth is that it will not get impacted adversely in the magnitude of what everyone feels.

There is a famous old adage which goes like this, “When the U.S sneezes, the rest of the world catches cold”! I feel this old adage should not be made applicable in the todays globalisation & open market economy age.

Rightly, there are reasons which makes one feel that India will be adversely impacted by the US recessionary trends ahead. From the American perspective, there has been sub-prime crises, weakening dollar, banking system in crises (credit crises), decrease in aggregate demand, weak consumer spending (high consumer spending which US is famous for) are some of the important ones.

However, it is completely incorrect to blatantly comment that all those economic happenings will take India to recession. Our Finance Minister’s statement that “India has strong fundamentals” is very much correct and not all politically motivated. Our Central bank, The Reserve Bank of India also has expressed the same thing over and over again.

Martin Feldstein, Professor of Economics at Harvard University, declared recently that the United States has already slipped into a deep recession that could be the most serious since World War II, it shocked many observers. Especially, Mr. Feldstein also heads the National Bureau of Economic Research, an organisation that is the official arbiter of when recessions begin in the country. But Mr. Feldstein says that the impact of a possible slowdown in the US will be very limited on countries like India and China. This expert on global business cycles also feels that, India is not just in a cyclical upturn, but has the ability to show high single-digit growth rates for very long periods of time.

Thanks to the IT & ITeS sector which now, has a large & sizeable share in India’s exports. Despite the rising Rupee adversely affecting their revenues, business projections announced by top outsourcing companies remain encouraging. Indian industry is currently seeing a cut in recruitment rate, reduced salary hikes, etc. this is surely going to be short-lived. We need to understand that such recourses may be adopted, but those are nothing but, to avoid economic & business jerks and it’s always better to be careful & safe than being, careless.

India’s Gross Domestic Product (GDP) Rate is what is much talked about! The Indian economy has shown a robust and consistent growth trajectory and the projection for 2008 is 9%. Indian exports to the United States account for just over 3% of GDP. India has a healthy trade surplus with the United States.

Reduced exports due to US recession will actually make Indian producers & manufacturers turn to domestic market & serve its own people, and this will ultimately make the domestic market more lucrative for them. After all, 350 million people with purchasing power cannot be ignored. All happens for good, isn’t it?

Performance of stock markets should not be regarded as some barometer for deciding the recessionary impacts, since stock markets players believe in philosophies of arbitrage and speculation and not purely economic happenings. There have been many cases-in-point which prove that there is absolutely no co-relation between the stock market indices and economic health of a country.

Believe me, India has and will be bouncing back to its growth trends in all respects and apparently nothing can stop it. All we need to remember is “Believe in ourselves!” and the management thought “Every problem should be looked as an opportunity”.

Anand A Wadadekar
M.Com, M.A Economics, PG Finance, AMFI, GCIPR, DIT
PUNE, Maharashtra

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