India likely to be affected by US recession, could impede growth in medium term

According to economists, the medium-term economic trajectory of India is expected to be hampered by the imminent growth slowdown in the United States. According to the research firm, Nomura India Normalization Index (NINI), the Indian economy is currently returning to above-normal levels and is being driven by broad-based gains in consumption, investment, industry, and the external sector.

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KEY POINTS:

• In March 2022, the service sector was about 4pp behind pre-Covid levels; however, it is currently heading close to 40pp above those levels.
• This improvement is anticipated to boost the Indian economy’s trajectory of growth in the near future.
• However, India’s economy is projected to experience a growth slowdown in the medium term with a “prolonged mild recession” in the US, as predicted by the firm.
• There are already difficulties with growth; India is the only Asian nation whose inflation rate is the highest.

Impact of US market on India:

• Around 18% of India’s exports of goods are made to the US, as are more than 60% of its exports of IT-ITeS.
• Additionally, the prognosis for India’s export and investment is likely to be negatively impacted by the slower overall global economy.
• Nomura projects that India’s GDP would increase by an average of 7.2 percent annually in 2022 before slowing to 5.4 percent in 2023, with downside risks.

Unattainable: A soft landing ach the US

• Whether it be the stock market, commodities, or rates, all have fallen recently due to the growing likelihood of a recession.
• There is disagreement among experts as to whether or not we are currently in a recession.
• Central banks, including the US Federal Reserve, have aggressively raised interest rates in an effort to stop the inflation from spiralling out of control.
• An economic downturn will probably result from this.
• The Fed is “fully committed” to bringing down inflation and can do so with its monetary policy instruments, Fed Chair Jerome Powell admitted the prospect of the same.

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