Impact of global crises on India
India was still struggling to recover from the devastating effects of COVID-19 when Russia invaded Ukraine, adding new economic difficulties to the already pressing ones. The European conflict caused supply chain interruptions, currency declines, soaring inflation, and stagflation predictions.
The world's top leaders recently gathered in Davos to discuss international concerns and find answers to current difficulties. A potential recession was the top worry among the world leaders at the high-level summit. Inflation is a significant component in recessions, along with other causes, including stock market crashes, excessive interest rates, and many more. As Union Minister Piyush Goyal met with the heads of numerous nations as well as regional and global organizations, India presented itself at the WEF as a trustworthy business partner, a country with a strong economy, and a desirable place to invest. Given the gravity of the current situation in Ukraine and nearby nations like crisis-ridden Sri Lanka, Pakistan's political and financial instability, and the developing monetary tensions in Nepal, India will also need to deliver.
Despite obstacles like COVID-19, chip shortages, conflict, rising commodity costs, container shortages, and severe shipping and logistical challenges, India's economic story has been hailed worldwide.
False Notion
India's Finance Minister, Nirmala Sitharaman, stated there is no possibility of a recession or stagflation in India. Even though some big economies are significantly at risk of going into recession, there is little chance that India will experience the same. She has even mentioned that the current situation of India's macroeconomic fundamentals is "excellent" and that it has sufficient reserves. Even the economists in a Bloomberg survey have agreed upon this. India's debt-to-GDP ratio is lower than that of several other wealthy countries. In July, the GST collection increased by 28% to reach the second-highest amount of 1.49 lakh crores. Despite issues like Covid-19, Omicron, and inflationary pressure, the government was able to keep retail inflation below 7% until August 2022.
Upcoming Reality
India's economy, which grew at the quickest rate among the world's major economies the year before, may suffer if there is a global recession. Increments in the price of everyday-use products, from gasoline to cooking oils, have been among the fastest in the past ten years. The retail inflation rate continues to be more than 7% which is above the Reserve Bank's top limit of tolerance which stands at 6%. The overall earnings of listed Indian companies, excluding financial organizations, have taken a hit. At the same time, the value of the rupee against the dollar is expected to fall further due to rising U.S. interest rates and a worsening domestic trade deficit. The exports are slowing down because many economies are entering recession while other advanced ones are already in one. The rupee's depreciating value against the dollar continues to pressure input costs.
The Russian invasion made a fragile post-covid recovery worse because economies required stimulus but were forced to swiftly 'taper' it by raising interest rates due to the sudden price surge. This led to an increase in the company's operations and investment expenses. Furthermore, it caused households to reduce spending, leading to a drop in demand. While many experts think India won't experience a recession, the country will undoubtedly be impacted.
If the west slows down, the flow of investment into India will suffer significantly. Indian markets might be impacted by a pessimistic outlook for the world's financial markets. As has been the case over the previous few months, startups are anticipated to suffer. In recent months, the number of new unicorns—startups valued at more than $1 billion. It has significantly decreased as international investors tightened their purse strings in preparation for a possible recession. Softbank, whose portfolio includes companies like Paytm, Flipkart, Ola, and Swiggy, has previously issued a "funding winter" warning.
According to a private survey, 66% of CEOs in India predict a recession in the coming year. CEOs worldwide believe that the slump the global economy will experience over the next 12 months will be moderate and brief, with 55% of CEOs in India having preparations to deal with it.
Conclusion
India is unlikely to experience a recession because of its 'not so coupled' nature with the global economy. Despite being a net energy importer, the Indian economy is much more independent of the global economy than we typically imagine, given its high local demand. On the other hand, Indian companies have been able to preserve sound balance sheets and have sufficient foreign exchange reserves. India was never fully integrated into the world economy; therefore, it has minimal reliance on international markets.
Author Details:
Name: Caroline Alexander
Batch: 2022-24
LinkedIn: https://in.linkedin.com/in/caroline-alexander-959250228
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