Other advanced economies are increasingly in tow as they battle their own challenges while Europe stares at a harsh winter. Putin’s recent threat to escalate the war in Ukraine will only exacerbate the situation.
Amidst all the darkness surrounding advanced economies, India has emerged as an island of hope for global investors as its strong domestic demand recovers from a pandemic-induced lethargy.
The Treasury Department’s latest macroeconomic assessment says that the consumption-led recovery, particularly in India’s contact-intensive sectors, will support growth in the coming months.
S&P’s chief global economist, Paul Gruenwald, is also very bullish on India’s growth, seeing it as an exception to a near-universal slowdown. On the forex front, he said the RBI, which is using about 10% of its reserves to stabilize the rupee’s volatility, is appropriate.
Here are five major positives for India amid a slowing global economy:
1. Inflation mostly imported
A recession in advanced economies will significantly reduce imported inflation risk for India as commodity prices cool. India imports more than 80% of its energy needs and lower oil prices will impact other sectors as well. The RBI and the government have taken steps together to bring down inflation. While the RBI has been raising interest rates, the government has implemented tax cuts on fuel to lessen the impact on the common man. It also imposed restrictions on wheat and rice exports to keep domestic prices under control.
2. Stable rupee
While the US Federal Reserve’s interest rate hike sent the rupee plummeting today, a recession in advanced economies will cool commodity prices, meaning demand for the dollar will fall. This will help stabilize the rupee. A rebound in global equity flows will also boost the rupee.
3. Deficit under control
Although a recession in advanced economies will cast a shadow over India’s exports, lower commodity prices will help offset some of the impact and a domestic recovery would mean higher imports would cost less. A stronger rupee due to lower dollar demand and a rebound in inflows will also result in a lower import bill.
4. Fastest growing economy
A rebound in capital spending will boost India’s GDP growth as companies gear their investment strategies towards a recovery in domestic demand. The capital goods sector, an indicator of investment in the economy, is showing robust growth. Coupled with strong domestic demand, India’s growth is expected to be the fastest in the world, making it an ideal place for global investors.
5. Shifting supply chains
In the longer term, the shift of global supply chains from China to other regions promises that India will become a manufacturing hub. Vedanta-Foxconn’s recent investment commitments in areas such as semiconductors are a strong endorsement of the Modi government’s manufacturing ambitions.
