CONCERNS are looming over the rising recession in USA and its ripple effects on India. Surging inflation in USA, leading to successive hikes in interest rates, crippled by Russia-Ukraine war with no end in sight, disruption in supply chain owing to USA-China trade conflict have led to jitters in India over its trade and investment relations with USA. USA is the largest trading partner of India as well as one of the top two or three foreign investors. Given these economic dimensions between the two countries, many think that recession in USA is likely to have a major drag on Indian economy. In 2022, USA reported consecutively negative growth in the first and second quarters, with 1.6 percentage and 0.9 percentage fall in GDP respectively. US Treasury bond fell 14 per cent year- to- date in June. Consumer confidence is in downtrend. The Consumer Sentiment Index, measured by University of Michigan, fell from 67.2 in January to 58.2 in August in 2022.

 

The downtrend is at par with the post Lehman shock. The observers viewed these an indication of USA plunging in recession. An important aspect of US recession is that not only it is feared to have direct impact on India, but also of collateral impact, which is likely to be spearheaded by other countries who are dependent on USA for trade and investment, such as EU and Asian countries, with whom India has trilateral economic relations. Nearly, one-third of India’s exports goes to USA. USA accounted for 18 per cent of India’s exports in 2021-22. As EU is another major area of India’s exports, accounting for 15.4 in 2021-22 and USA is the major destination for EU exports, eventually the situation possesses vulnerable to unleash ripples on India’s exports to EU. The four big economies of EU - Germany, France, Italy and Spain, who account for half of India’s exports to EU – have been downgraded by IMF in the forecast for their GDP, as a consequence of USA recession. USA is also the major destination of India’s exports of IT and BPO services. Over half of its IT and BPO exports go to USA. Besides, USA is the potential hub for job opportunities for IT services. Major items of India’s exports to USA are petro products, drugs and pharmaceuticals, textiles, readymade garments and precious stones including diamonds.

 

They account for more than half of India’s exports to USA. India’s exports to USA is driven by textiles, precious stones including diamond and small machinery. An important aspect of India’s exports to USA is that they are labour intensive industries. These industries are the potential hub for job creation in the country. Given these, trade expansion with USA has multi-faced implications on Indian economy, besides trade. However, the past trajectory of US recession and the impact on India should override the concern in India. The great USA recession in 2008 is a case in point. Initially, after having a little jerk, Indian economy bounced back during US recession in 2008. India’s GDP growth plunged to 4.31 per cent in 2008-09 , from 7.38 per cent in 2007-08. Soon, it got insulated from the shock and reverted back to 6.86 per cent and 8.03 per cent growth in 2009-10 and 2010-11 respectively. Similarly, India’s exports to USA, after initial shock, made a roaring growth during the US recession period beginning in 2008. Its exports to USA, after a fall by 7.6 per cent in 2009-10, sparked by 29.5 per cent and 37.6 per cent in 2010-11 and 2011-12 respectively. These demonstrate India’s immunity to US recession. Recently, American investors have been upbeat to invest in India and found it a major alternative to China after the COVID pandemic damaged China’s supply chain industry. In 2020-21, USA investment in India increased by 297.2 per cent, though the country suffered from widespread COVID 19. Over 80 per cent of the investment was in digitisation. They were inspired by Prime Minister Narendra Modi’s strong vision to make India a digitisation hub of world. India emerged as the country with second most internet connections in the world, next to China.

 

With nearly half a billion internet connections and the second most smart phone users, it has emerged as the global leader for digital economy. The recent decision of Apple of USA to decouple from China and shifting to India demonstrate American leaning towards India. The decision to set up semiconductor device manufacturing facilities in India with Foxconn, the main subcontractor for manufacturing of Apple iPhone and other high tech communication equipments, is another factor to spearhead US interests in India. These demonstrate that India stands for a strong immunity to US recession. The principle of India’s immunity strength depends on its economic fundamentals. Unlike Asian economic giants, India is not an export base economy. Asian tigers like Singapore, Thailand, Malaysia, South Korea, China are export based economies.

 

Nearly half of GDP is contributed by exports in cases of Singapore, Thailand, Malaysia, South Korea and 20 per cent in case of China. USA is the major export destination of these countries. For instance, USA accounted for 16 per cent each of exports of Thailand and South Korea, 18 per cent of exports of China, 12 per cent exports of Malaysia in 2021. As a result, US recession has major drag on these economies. Against these backdrops, India escapes the ripples of US recession since exports do not play prominence in its growth. Exports account for one-fifth of India’s GDP. Given these, even though USA is the biggest destination of India’s exports, it unleashes slender impact on Indian economy. These decipher that US recession has less bearing on Indian economy, unlike Asian economic tigers and EU. (IPA)