What Will Be the Impact of Global Recession in India?

Impact of Global Recession in India

KAKALI DAS

Recession is the new buzzword in the international media nowadays.

Managing Director of International Monetary Fund (IMF), Kristalina Georgieva has indicated that recession is on its way.

Now, IMF has further lowered its global growth 2023 estimate which was already beaten down at 2.5%. This will be the fourth revision of growth rate by IMF.

From post pandemic optimism to dark and gloomy future is being observed by one and all.

Even the UN report has shown that fiscal policies of advanced economics risk global recession.

UN has also warned of damage being worse than 2008 global financial crisis.

Because large economies – US, China and Euro-Zone have been slowing down drastically. Surely, this will have an opportunity for us, some will say.

The main reasons for economic downturn are – The slap of Covid-19, Russia’s invasion of Ukraine, Climate Change. Climate catastrophes all around the world that contributed to slowdown.

What will be the impact of recession on India?

Will you get the much needed increment in the coming March? In order to understand these, a global outlook is necessary.

Firstly, what is this recession anyway?

Recession is observed when economic activities slowdown. A recession is a significant, widespread, and prolonged downturn in economic activity. A popular rule of thumb is that if two consecutive quarters show decline in GDP then there is recession. In simple terms – lack of jobs, downfall of GDP, drop in public spending and negative business outlook.

Economist Nouriel Roubini, who predicted 2008 crisis, has warned of a long and ugly recession till 2023 end in the US. Why did he say this? Let’s first learn about it.

Recession is coming: USA

Federal reserve called inflation ‘transitory’ as it kept interest rate zero. Now, to control skyrocketing inflation, interest rates have been increased abruptly. Rates may surge more, making any type of loan costlier than before. Recession is around the corner – it is only a question of when, not if. “US should prepare for recession,” said Goldman Sachs’ senior chairman Lloyd Blankfein. Dow Jones, akin to Sensex, has already corrected, but people are prepared for more fall.

Recession is coming: Europe

Europe was overly dependent on Russia for gas supplies. Russia accounts for 40% natural Gas consumption for Europe. Natural gas stopped if and when they stood in support of Ukraine. Amid war, electricity price has increased 5 to 10 times making it unbearable for people there. So, recession is inevitable in Europe. Germany on track for recession, high inflation in 2023, says central bank. German annual inflation rate in September was 10%. Germany is the first G7 country which has accepted the forthcoming recession, saying – We are at an energy war with Russia.

Recession is coming: China

Zero covid-19 policy of China is the main reason for recession there; make in China has suffered. Hence, exodus of manufacturing began as companies adopted China + one strategy, to reduce dependence on China. Besides, people in China are finding it hard to pay loan; real estate sector is struggling in China slowing down overall economy. As housing prices fall – banks have predicted 4% dip in economic growth next year (lowest in a decade).

Those were the global scene – now what about us, India?No doubt, China’s struggle makes me happy, but we have challenges to overcome too. How will common person benefit during worldwide crisis? Job market has been still lacklustre; we lack the necessary skills for employment.

Is India safe from recession?

How will global recession impact India? What will be our strategy? Global rating agency,Standard & Poor’s(S&P) says that India is unlikely to be affected, because we are a decoupled economy – our own internal demand and supply are strong. Whereas, Japanese firm Nomura says the opposite, slashing our growth percentage to 5.2% from an expected 7%. GDP growth forecast by RBI and expert economists was 7%, but after moderation it may well be 5.2%. This is not a good sign for India. For us to be $5 trillion, at least 7% growth is necessary. 

This is still not recession in India

Still no recession in India! Mathematically, for recession, there has to be negative trajectory in economy, which isn’t the case here. Even government has projected a growth of 6.5%, and that India will be a fastest growing economy, the domestic economy is stronger here than the other economies, and manufacturing is moving to India which is a big plus. Besides, government say that India is not much in an external debt, that we have a prudent monetary policy, service sector has been successful and that the poor have been given an effective social safety net.

Although, these may be true, but in reality, the country is not that decoupled that the govt. tries to project. The reality is – the world is inter-linked and interdependent, global slowdown mean slowdown for India too. There is a pressing need to fire up domestic consumption, people are losing jobs.Global downturn will slowly, but surely impact India.

Is our domestic consumption strong enough? We thrived amid 2008 crisis because there was a strong footing, and hence we weathered the storm. But this time, the situation got worse because of the pandemic. Unfortunately, favourable growth rate is supported by only a few – World Bank has pointed that growth needs to be broad based.

The bad news in our economy is that – there are favourable growth rate, but supported by only few, all household don’t see equal growth of income, only 20% women are participating in the labour market. The focus of our government is on big firms, but what about the small businesses? More participation in economy will be beneficial.

What if recession stays?

If recession stays for long, then impact will be dreadful. Edible oil and petrol price are high, and retail inflation is above 7%, already. Wholesale inflation is near 14%. Right now, we are talking about a 7% GDP rise, but in the last 4 years, only 4% growth was observed at an average, which is worrying for a developing country as ours. Industrial growth decelerated to 12.3% YoY from 20% in June.

Finance Minister Nirmala Sitharaman asked India Inc. what is stopping them from investing!So, someone kindly inform Nirmala-ji that nobody is investing because domestic consumption is shrunk while global recession ensues.

Dollar has climbed beyond 80 against Rupee. Exports did increase (even though imports were way higher but the exports are likely to decrease given the global economic situation). As per World Bank, Indians account for 80% of those who became poor globally in 2020 – seems as if “make poor in India” has started.

How can India beat the recession?

Today, India’s situation is better than the world – we will grow despite recession globally – but, can it be increased further?

• New Economy can help – digital solutions, start-ups, renewable energy. New industries can help in growth.
• Tax breaks for performing businesses
• Increase spending on education and healthcare
• Stringent punishment for loan defaulters. Whereas, Canara Bank writes off 1.29 lakh crore bad loan, refusing to share name.
• Government should stop tax terrorism.
• Promote more businesses. Our country is desperately in need of thousands of Adanis.
• Best usage of demographic dividend is the need of the hour. Observe how per capita income of Vietnam, Indonesia are higher, while Bangladesh’s giving close competition to ours.

Let’s manufacture quality products for the world to use. Definitely we are better than other economies but lots more to do.

Headline Image: World Bank

[Images from different sources]

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