India Economy Displaying Signs Of Silver Lining Amidst Talks Of A Global Recession

From crude metals to edible oil, prices of most commodities are dipping—good news on the inflation front for India, which is a net importer of commodities. Relative to the global economy, the standpoint for India’s economy is bolstered by the recent revival of monsoons, the pick-up in manufacturing and services, equilibration of inflation pressures and strong buffers in the sort of adequate international reserves, ample foodgrain stocks and a well-capitalised financial system. These facets strengthen the conditions for a sustainable high growth trajectory in the medium term.

Not all businesses and industries experience the same pain during economic downturns. Some businesses even profit as consumers cut back on substitute products. Recessions are hurting investors and enterprises relying heavily on debt and leverage to take on risky, speculative investments or business investments. Some businesses even profit as consumers cut back on substitute products.

War And Pandemic Contributing To The Rise Of Recession?

During a recession, there is a reallocation of credits and real resources, which can create good buying opportunities in stocks and hard assets such as homes, amongst others. Strong businesses can thrive as labour and capital become economical. In case there is a recession in the near time, it should be looked at as a bump in the road that India is reasonably equipped to withstand as the long-term growth story of the country is still intact.

With the Ukraine war set to enter its sixth month and the coronavirus tally surging yet again in some parts of the world, worries around a recession have emerged as prominent key banks around the world like the US Federal Reserve, ECB are hiking interest rates aggressively to curb the surging inflationary pressures. The International Monetary Fund dreads a full-blown debt crisis in many smaller economies. Developed countries, too, are in economic turmoil, and the malaise could be much deeper than what is visible. Meanwhile, in the wake of the current global inflationary episode, the part of monetary policy in response to RBI’s rate-setting panel actions to mitigate supply-driven inflation has been in focus.

When a supply shock is transitory, inflation returns to equilibrium. Recurring supply shocks generate second-round effects necessitating pre-emptive monetary policy. When the economy is going through contractionary phases, an unpropitious supply shock can worsen the monetary policy trade-off. This will anchor inflation expectations, entailing less aggressive policy increases in the future and a lower growth sacrifice.

India Setting Itself Up For The Future 

India is doing everything correct and setting itself up to be the next economic powerhouse. It has focused most of its advancement on the services sector, which provides 52.1% of value added to Indian GDP. These factors are in addition to booming population growth and relatively pro-business reforms that have set the country up for success.

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India is looking to clock $350bn worth of services exports in 2022-23, a growth of 40% over the previous fiscal year as central sectors, including travel, hospitality, and entertainment, are set to post a swift recovery post-pandemic. There’s an India in the US; an India in Europe; this success is replicable.

India’s cross-country remittances inflows have proven to be a resilient source of current account receipts during the pandemic bring, driven by altruism motive, captured by the infection rate in the destination country and the stringency of the lockdown in the primary source countries.

Moreover, the country’s soaring import bill could come down because of low crude prices, making more room for the Modi government to push demand fiscally and monetarily and revive an aching economy. Moreover, most of India’s sovereign debt is owned domestically, which protects the country from the risk of defaults and a full-blown sovereign debt crisis, which sundry developing economies could face in the coming months and years.

Our View

The threat of recession is real, especially in advanced economies, but in India, things look a cut above. Central banks worldwide will have to take notice while increasing interest rates. Fastly increasing rates could lead to a recession. The prevailing global conditions aligning to push India’s domestic consumption growth might also prove to be a cogent weapon for the Modi government in its fight against inflation. After a recession, equity markets often attain higher highs as economies recover. Hence, such times present money-making circumstances to investors with the time and patience to wait it out. In today’s world, patience is a superpower.