December , 2022
Global Recession: Can India Ride Out the Turbulence?,
23:43 pm

Saptarshi Roy Bardhan

The American recession seems to have a ten-year cyclic return.  With the 2007 – 09 meltdown and the 2019-20 pandemic induced heart break, the impact was severe. In comparison, the recession, as being forecasted to crawl in between 2022 and 2024, “certainly be milder and more pedestrian”, as observed by The Economist. 

Be that as it may, its effect on the other economies around the globe, including India, may not be benign because of the otherwise fluid condition currently in existence., In the first place there is a semantic argument between the players in the economy and market pundits that if the recessionary symptoms are visible, though it has already breached the two-quarter decline rule, i.e. the real gross domestic product GDP to decelerate consecutively two quarters is a confirmation of a recession setting in, remains inconclusive. Whereas the Fed with a clear objective of taming the inflation in the US economy had tightened the rate from 0.25% to 0.40% within nine months, the last hike being made on November 2, such a hike would certainly imply a readjustment in different sectors in terms of money supply and demand. Added to this is the geopolitical tension that is prevailing since the invasion of Russia on Ukraine which has its own set of ramifications like skyrocketing oil price and logistical challenges being faced by international trade. On the export front, Russia is a big producer of natural gas, oil, metals and grains, the Eurozone and the US being the major beneficiaries. Erratic supply lines from Russia also gave rise to higher commodity price levels in the US. The first fallout of the recession is the large-scale downsizing of the American corporations like Amazon, Twitter, Meta, Cisco, Carvana, and the likes. While in the past few weeks Meta and Amazon have already cut about 10000 employees each, the ongoing purge at Twitter may see the tech entity reduce its 7500 headcount by 75%. The tech companies are high profile and the workers highly paid. However, such drastic cuts get blurred in the overall number as other segments are still growing. In its entirety, the unemployment in the US economy in October 2022 was 3.70% versus 14.80% in April 2020. So about 80% of fresh hirings took place during the period 2019 to 2021. Gradually, this over-optimism has given way to reality and it looks like that it is now on a correction mode. 
On the Indian shore, the growth of online products, services including online education surged during the pandemic time. Moreover, the demand for IT services across the globe, especially from the US and the European market have been phenomenal. Accordingly, there has been additional investments in human and other physical resources in companies providing those services.  Many are under pressure currently to cut flabs amidst the American venture funds facing the high interest rate regime. Look at Byju to Udaan to Zomato to Ola, Cars 24, Unacademy and so on and so forth. These are now off setting the over hiring phenomenon that was noticed earlier. The traditional IT companies, on the other hand, are not yet hurt to that extent. Beyond the performance related severance, no significant layoffs have been reported. US and Eurozone recession, going forward, may hurt this segment. Capital flow in the Indian stock market might suffer negatively, riding the perception of an economic recession setting in the US. This is quite natural as the Rupee versus Dollar rate is in a volatile stage currently. One may trace a similar movement during the 2008 market shocks when it went up from `39 to `48 and later to settle  at `42. 
Going ahead how the Indian economy is going to get impacted because of the slowdown is the moot question. The current growth estimate of 6% for fiscal 2022-23 is already toned down by 200 basis points factoring the slow down. This number would have been further worse had we not have the services sector contributing about 50% to the gross value added (GVA). Since the disruption of the global supply chain affected the manufacturing segment more and that shares a meagre 20% to the GVA, the shock was absorbed and the overall impact was lower. 
There is a blip on India’s export front. The demand for engineering goods, petroleum products, gems, jewellery, textiles, agri products etc did register a downward trail. Again, export not being a significant contributor, the overall impact is rather lukewarm. Going ahead, the country should be careful about its import basket which is price sensitive. This, combined with domestic pressure has already resulted in a high rate of inflation. RBI has been forced to turn hawkish in consecutive monetary policies and jacked up the policy rate by 190 basis points by September 30, to counter such inflation. With the Russian war showing no sign of deceleration and China’s stringent policy of lockdown to contain outbreaks continuing, India’s calibrated decoupling from the world economy may be a boon in disguise.  
Saptarshi Roy Bardhan, DGM, Peerless Financial Services Limited .Views expressed are his personal , 2022.

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