How Will India Fare As Global Recession Fears Loom Large?

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How Will India Fare As Global Recession Fears Loom Large?

India could benefit from a recession-led fall in commodity prices.(File)

New Delhi:

Amazon founder Jeff Bezos’s advice that consumers keep cash safe and avoid unnecessary spending has reconfirmed fears of the US economy slipping into recession.

The markets have been abuzz with fears of recession in the world’s largest economy. High inflation in the wake of the energy crisis due to the Russia-Ukraine war first sparked the concern. Large-scale tech layoffs further accentuated the fear. Jeff Bezos’ comments come even as Goldman Sachs has forecast that the US will narrowly avoid a recession.

Policymakers in India appeared confident that growth prospects are bright. Even as the finance ministry has kicked off budget consultations with industry stakeholders, Niti Aayog Vice-Chairman Rajiv Kumar has said there is no such prospect of recession in India, though India’s growth may be negatively affected by the global conditions.

“We will still manage to grow at 6-7 per cent in 2023-24,” he said.

Recession in the US will have its imprint on finance minister Nirmala Sitharaman’s next budget.

India is not immune to global recession or slowdown which impacts trade, commodity prices, and capital flows.

Previous recessions/slowdowns tell that auto and ancillaries, metals, textiles, etc. have been affected, but gems and jewelry, chemicals, and pharmaceuticals have been rather robust, according to Kotak’s study.

“Historically, discretionary consumption items have exhibited more volatility than staples,” Kotak said in the report.

“Lower exports coupled with relatively strong domestic growth (hence, higher imports) could risk worsening the external balance. Exports have helped push GDP (gross domestic product) back to pre-pandemic levels. We maintain our FY2023-24 real GDP growth estimates at 6.8-6% with downside risks in the near term given the external sector headwinds,” Kotak said.

India couldĀ benefit from a recession-led fall in commodity prices. An implied outcome of recession would be lower prices as demand reduces.

“In a scenario of a global slowdown, it is expected that commodity prices will correct lower,” Kotak said.

While disruptions to exports might lower manufacturing growth and impact consumption to some extent, given the low dependence on exports, India will be a relatively favored destination for foreign fund flows, especially when compared to export-oriented economies.

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