Ever since the COVID-19 pandemic disrupted the world, the spectre of recession has loomed ominously over global economies. With central banks like the US Federal Reserve, the Bank of England, and the European Central Bank aggressively hiking interest rates to combat surging inflation, fears of a global economic downturn have intensified. This economic turbulence is compounded by the ongoing Russia-Ukraine conflict and the rollback of pandemic-era measures, painting a bleak picture for the near future.
Advanced Economies and the Indian Paradox
Interestingly, while advanced economies might be staring down the barrel of recession, analysts suggest this could paradoxically benefit India. As a net importer of commodities, India could see a cooling effect on inflation due to falling global prices. However, this potential benefit is shadowed by concerns that a prolonged mild recession in the United States could slow India’s growth in the medium term.
The US is a significant player in India’s economic landscape, accounting for approximately 18% of India’s merchandise exports and over 60% of its IT-ITeS exports. A slowdown in the US economy, therefore, poses a considerable risk to India’s export and investment outlook. Nomura, a leading financial services group, projects India’s GDP growth to moderate from 7.2% in 2022 to 5.4% in 2023, with significant downside risks.
Global Growth and India’s Prospects
The International Monetary Fund (IMF), in its July World Economic Outlook update, has revised India’s growth forecast for 2022 to 7.4%, a decline of 80 basis points. For 2023, the IMF projects a growth rate of 6.1%, reflecting less favourable external conditions and rapid policy tightening. The revision aligns with the broader global economic slowdown, which the IMF forecasts at 3.2% for 2022.
The US economy, pivotal to global economic health, has seen its growth projections cut sharply. The IMF now expects the US to grow by 2.3% in 2022 and just 1% in 2023, with a significant slowdown anticipated in the latter half of the year. Such projections heighten concerns of a recession, defined by two consecutive quarters of negative growth, which could have ripple effects on other economies, including India.
Recession Probabilities and India’s Resilience
Despite these global uncertainties, the probability of a recession in India remains low. US-based Goldman Sachs estimates a 30% chance of a US recession in the next year, with Bank of America Securities placing the odds at 40%. However, for India, Citigroup’s head of economics suggests that a recession in advanced economies might benefit India by moderating global commodity prices, thereby cooling domestic inflation.
Nomura’s analysis via the Nomura India Normalization Index (NINI) indicates that the Indian economy is recovering robustly, driven by improvements across consumption, investment, industry, and the external sector. Bloomberg’s survey of economists echoes this optimism, indicating zero probability of an Indian recession.
Government Measures and Future Outlook
Finance Minister Nirmala Sitharaman has emphatically stated that India is far from facing recession or stagflation. The government is actively working to bring down retail inflation, which stood at 7%, through various measures, including making raw materials cheaper and reducing food inflation.
The extent to which a US recession impacts India will largely depend on its severity. While the Indian economy has shown remarkable resilience, it cannot entirely escape the effects of a global slowdown. The interconnected nature of modern economies means that a downturn in advanced economies will inevitably influence India. However, with strong domestic policies and a diversified economic structure, India appears poised to navigate these turbulent times with a relatively stable outlook.
Indrajit Roy Choudhury 
Although the Indian economy is resilient and RBI has taken good steps to contain the depreciation of INR against USD, the nation cannot remain immune to the global recession as our exports will be subdued. Our likely advantage is that the global recession may result in a fall in commodity prices as we had seen during the Corona time.
Thanks, Nilanjana.
What will be the economic scenario of our neighbours? The few rogue ones could start a war which may alter all calculations.
Our world’s spate of recently unimaginable disasters — European cities pulverized by war, Earth’s decaying climate or pandemic disease — evokes the question: What other “unthinkable” crises should we anticipate?
The rivalries, periodic clashes and armed capacity of the three nuclear nations have sharpened over 15 years. South Asia has gradually become a theatre of rival alliances — between the United States and India on the one hand and China and Pakistan on the other, a polarization accelerated by the global strategic rivalry between China and the United States. India and Pakistan would suffer in case of any unfortunate development. That would be a Black Swan event.
I pray to the Almighty that such a day shouldn’t come when there is full-fledged military combat in the South Asian region.
On this day, 77 Years Ago, 06 August 1945 at 8.15 AM, the USA dropped the Nuclear Bomb on Hiroshima in Japan. The war came to an end. But a new nuclear world emerged overnight.
👍
I am afraid inflation is here to stay. A global huge debt/GDP ratio and abnormal low real interest rates indicate the presence of inflation pressures regardless of the independence of central banks or monetary policies. Inflation will reduce the value of savings and purchasing power of wages, creating social inequality. A new equilibrium will take time to materialise as the cost of capital, labour- and energy are adjusted to the new geopolitical and macroeconomic realities.
You’re right, sir. Thanks, Grover Saab.
I am beginning to realize that we pay too much attention to economists. What is needed will be produced and bought. The absoluteness of GDP seems to be meaningless. A new relative measure is needed. When one becomes poor, someone else becomes rich. Or poorer and richer.
You’re right. We are giving publicity to our GDP as it’s among top 5/6, while we lag behind in per capita GDP, which everyone prefers to ignore and that’s sad.
Nicely explained. Various surveyes shows that India is likely to face slowdown, but not slip into recession. Economic slowdown indications are already there – wide trade deficits, higher import bills, decreasing forex reserves etc. World recession will definitely affect India’s growth. Even if India is benefited from low cost of commodities and reasonably thriving domestic market, we will find difficulties in locating foreign buyers in case of world recession. Therefore, India’s export is likely to slip down further.
Thanks, Mano. Yes, if the US recession is deep and long, then our exports will suffer.