India Shines among Global Recession Nightmare

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:

• The study further said the personal loan segment registered a growth of 57 per cent during 2022.
• Banks and other financial institutions disbursed as many as 34 lakh home loans totalling Rs 9 lakh crore in 2022
• India’s per capita gross domestic product recently crossed the $2,000 threshold. This is a major shift and it’s a continuous journey
• Indian economy is moving from under penetration” and moving up the per capita consumption scale.
• It has been found in data analysis that there are 6.5 crore active consumer durable loans at December-end 2022, registering an annual growth of 48 per cent over the last year.
• Average industrial capex during the last five-year period of the fiscal year 2018 to 2022 was around 3.7 lakh crores and had grown by 7% on average. This is going to go ahead with 10% to 12% growth in the coming years as PLI and other policy frameworks mature ahead.
• India’s finished steel exports in April rose to their highest level in 13 months in April on the back of strong booking from countries like the EU.
• Cost of doing business in India is coming down significantly which drives the manufacturing cost.
• Of the 14 trillion rupees ($170 billion) of government projects tendered, over 60% were awarded, compared to the usual 35-40%which used to be a historic number as of today.
• In FY22, nearly 25% of orders in the projects and manufacturing segment were from the private sector. In FY23 that has moved to 32%.
• Corporate balance sheets’ debt levels are very low compared to historic levels.

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.