Will India go into recession as a result of the recession in advanced countries?

India will both benefit and suffer from recession in the West, according to experts.

Recession

Global growth is set to slow down this year, and the US is headed towards recession, say economists with leading international organisations. But where does that leave India? Well, according to experts, India will both benefit and suffer: they believe a recession in advanced economies will release domestic a’s inflationary pressures but impact the growth of the Indian economy.

The global scenario

A World Bank report released last month says global growth is expected to slide to 2.9% in 2022 from 5.7% in 2021, a direct result of the Ukraine-Russia war and the lingering effects of the pandemic. 

But while the World Bank thinks that developed nations will cope with the global growth slowdown because of their stronger financial institution and “clear mandates for price stability”, economists at Goldman Sachs are not so sure about the US. In fact, they believe the risk of US stagflation over the next two years has risen to an alarming 48% from the earlier 35%.

“We are increasingly concerned that the Fed will feel compelled to respond forcefully to high headline inflation and consumer inflation expectations if energy prices rise further,” these economists wrote in a research note earlier this year.

Also Read: Economic Slowdown: 8 Dos And Don'ts Of Personal Finance

Predictions for India

Halfway across the globe, other economists paint mixed scenarios for what a recession in the western economies - notably in the US - could spell for the Indian economy.

Samiran Chakraborty, managing director and chief economist for India at Citigroup, believes India will benefit from recessionary trends in advanced economies. In his view, a stagflation-fuelled drop in global prices will help cool domestic inflation in India. “India being a net importer of commodities should benefit on the inflation front,” he says.

In an interview with Bloomberg TV, Chakraborty spelt out the reason why: the policy-making by India’s central bank, the Reserve Bank of India (RBI), was “entirely focused on inflation control”, which would in turn “benefit India in a perverse way”. He was referring to the RBI’s raising of benchmark interest rates by 90 basis points since May in a bid to temper inflation, which has remained above its threshold mark since the start of the year. 

Also Read: The 5 Best Recession-Proof Businesses For A Side Hustle

It is believed RBI rates are set for further hikes, though the bank’s deputy governor Michael Patra tried to scotch such fears at an industry meet in Delhi in June. The RBI says the steps it takes under its monetary policy will be more moderate than what’s seen elsewhere in the world. The aim is to bring back inflation to the target levels within a two-year period, says Patra, a member of RBI’s Monetary Policy Committee (MPC).

The India slowdown

Despite seeing certain benefits for India, Citi’s Chakraborty also talks of the downsides of the recession in the west; export squeeze for India and a growth slowdown. The view is shared by economists at Nomura Research Institute. In a recent note, Nomura said the growth slowdown that the US faced could lead to a growth slowdown of the Indian economy in the medium term. 

M Stock

NEWSLETTER

Related Article

Premium Articles