We are at a point where 60% of the world economy is under the recession path and India stands out to attract capital investments is a major concern for every class of investors. It’s quite difficult to believe that India will not be impacted to the degree it used to be in history by the global recession.
Well know it but we all ignore it. Inflation was created by a policy framework and now the recession is also being created through a policy framework. The U.S. and all those economies dependent on the U.S. will find a significant slowdown in the coming H2 of the CY-23. The macro numbers of the slowdown may not be looking so fearful but the preparation of the recipe of the slowdown has begun now. US manufacturing has been coming down significantly but the consumption drive of US citizens did not allow casting the shadow of a slowdown.
The aggressive rate hike history created by US Fed in the last 15 months will have its impact in the 2nd quarter of CY-23 and more noticeable by the 3rd quarter. The broader macro factors impact has started to weaken the U.S. economy. It was found that the savings rate, credit-card balances and loan delinquencies are showing weak signs and consumer-driven consumption is on the path of slowdown. The future investments from business is slowing which will push up unemployment and delay gross fixed asset formation in the coming months which will spill over to years. The recent Conference Board measure of CEO confidence or the NFIB small business optimism index, is at recession levels. The housing market is falling down with a high rate of interest creating fewer job opportunities in the sector. But the biggest threat which will be coming up in September 2023 is the Federal student loan repayments which could severely impact the spending power of millions of American households.
Now how much India will be impacted by the U.S. recession threats and reality? The year 2023 is very much different as compared to 2011-12. The Indian economy is focused towards manufacturing linked with domestic consumption. The current phase of the global economy might lead to many countries facing a loss of decade opportunity whereas, for many countries like India, it will be Golden Opportunity.
The government’s focus on infrastructure drives private-sector consumption. The key below data points will help to understand that the Indian economy is not going to be getting impacted form the recessions of the U.S economy:
Even with the current phase of rate hikes and FII’s heaving selling in many sessions and months, it was found that portfolio investors pumped a net $2.7 billion into India in four key consumption sectors in the 11 months to March, as per the data from India’s National Securities Depository. Sectors which attracted the funding are automotive; consumer durables; consumer services; and fast-moving consumer goods.
Opportunities for the Indian economy are the prime reason that differentiates the impact of the recession. India’s per-capita income has a long way to catch up with China if we consider it a benchmark within the Asian Economies. It has been found India’s per capita consumption of food was at $314 in 2020 compared with $884 for China, while for clothing, that figure stood at $53.9 versus $212.9 for China, data from CLSA showed. Per capita spending on health-related items in India was $56.8 in 2020 and $389.3 for China.
Private investments in India have fallen significantly whereas a share of GDP has been steadily falling. It fell to 21.3 per cent by 2015-16. By 2020-21 it has fallen to 19.6 per cent. But this is the key place of opportunity which now opens up for attracting growth for Indian GDP. The services sector’s contribution to GDP has risen from 45 per cent to 55 per cent while manufacturing has remained largely stagnant at 15 per cent in 2017 and 17 per cent in 2022. The change in global supply chain mechanism is changing the Indian manufacturing opportunities leading to aggressive growth.
If you remember that the last recessions of Asia and Developed economies were of a significant amount of capital destruction which took time for the economies to begin a new cycle of investments. In fact, in India, the adverse effects have been more limited.