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But, is the Indian growth story resilient enough to bear the global recessionary storm? How long can India continue to grow relatively well in a globally linked world? The opinion on that stands divided!
In the Times of India Online survey, 7 respondents said India’s growth story is decoupled from the world. 6 experts were of the view that India is not isolated, while only one said it is difficult to predict the extent of impact.
The domestic growth story
According to Radhika Rao, Senior Economist at DBS Bank, India’s domestic sector resilience will act as a buffer against slowing global growth. This is compared to more export reliant North Asian economies. “A complete decoupling is unlikely given plans to broaden the economy’s footprint in global trade as well as manufacturing value chains,” Rao told TOI.
An economist at a prominent housing finance company says that India is primarily a domestic demand-driven economy so, it is largely decoupled. Agrees another economist at a leading industry body, “India has a large share of domestic consumption in its GDP, which is seeing a recovery. Both consumption and investment drivers indicate positive momentum,” the economist said.
Madan Sabnavis, Chief Economist at Bank of Baroda exudes confidence in the India story. “India’s growth to my mind is mainly domestic and hence we can feel confident of growth this year. While it would be higher in case there was no recession in the west, it would still be impressive in relative terms in 2022 and 2023,” he tells TOI.
However Sabnavis admits that India is not immune to shocks in investment flows, interest rates and currency. “These indirect effects will remain. But growth per se will be in the 6.5-7% range this year and probably a bit lower next year,” he says.
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Nikhil Gupta, Chief Economist at Motilal Oswal Financial thinks India is relatively decoupled, but won’t be insulated either. “Accordingly, we see growth weakening to ~5.5% in FY24,” he says.
Sachchidanand Shukla, Chief economist at Mahindra Group points out that the growth trend is divergent and not decoupled. “Growth correlation is higher in the near term,” he says.
Impact of recession in a linked world
The Indian economy is not decoupled, says DK Srivastava, Chief Policy Advisor at EY. “It is crucially linked to the rest of the world through exports and imports, financial flows, and a strong technological interface,” says Srivastava.
Agrees Indranil Pan, Chief Economist at Yes Bank, stating that he expects the economy to slow in line with the global growth. “However, the relative hit could be lower as India’s growth still is significantly reliant on domestic personal consumption expenditure, government expenditures and private investments in capacity addition,” he says.
India is linked to the global economy via trade, investments and global supply chains, points out Dr. Rupa Rege Nitsure, Group Chief Economist at L&T Financial Services.
Dr Arun Singh, Global Chief Economist at Dun & Bradstreet cautions that India will be impacted in multiple ways. “The cost-of-living crisis has pushed consumer confidence levels, a proxy for future demand, to record lows in the US, UK and China. Consumer confidence in other major economies such as Germany, Italy and France have also declined significantly,” Singh says.
He believes this in turn will mean exports will decline in the near future. “India’s merchandise exports declined at an average rate of 0.2 in Q3 2022, compared to an average growth of 15.4% in H1 2022. Given that real interest rates are still negative in the major economies, nominal interest rates will continue to rise,” he explains.
According to Singh the impact of a tight monetary environment is visible in the funding that some of the sectors are experiencing. “Moreover, there are over 5000 foreign companies registered in India. A deterioration in the health of the parent companies will eventually impact their subsidiaries in India through budget cuts and possible downsizing of the workforce,” he adds.
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Vikas Vasal, National Managing Partner, Tax at Grant Thornton Bharat says it’s still debatable how much recession or the slow-down will impact the global economy. “It is unclear how much impact it will have on different economies including India. Having said that, there is a consensus building up that though a major recession is likely to impact India adversely, a mild recession or slowdown may not have a big impact,” he says.
India in a relative sweet spot?
Ranen Banerjee, Partner at PwC says that though the Indian economy is not decoupled, it has several shock absorbers. “The financial market depth has increased with 3x retail investor growth in the last 3 years. Private consumption is strong,” he notes. “The digitalization and progressive formalization of the economy is leading to buoyant tax revenues for the government providing it with the fiscal headroom to undertake investments in infra as well as pump prime the economy,” he tells TOI.
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Banerjee is of the view that the push to manufacturing at a time when the world is looking at China+1 is also helping. “Capital flows to India will be relatively less impacted than other emerging economies as it will continue to be an attractive market to invest in as there will not be many alternative markets offering better return prospects. This makes the growth story in India a bit different than other major economies,” he explains.
Srivastava of EY believes that the ongoing supply chain relocations may work in India’s favor in the medium-term. “Although the Indian economy is not decoupled, it has endeavored to cushion itself against global recessionary trends by building strategic relationships in a fragmenting global economy,” he notes.
Vasal of Grant Thornton Bharat says India has a large domestic market and domestic demand has picked up across sectors. “Further, investors and global companies are viewing India as a favorable investment destination from a mid to long term perspective,” he tells TOI.
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