Tuesday, 25 November 2008

Impact of the World Recession on Indian economy

Recession has already arrived in US, UK and major EU economies; China is also going to be affected badly. China’s growth is going to come down from 12% last year to around 8% this year which is a big hit on its growth. So there is overall slowdown in the growth of the world economy so the impact of recession is going to be felt definitely in India. Here in my view how some of the sectors would be impacted in India.

Stock Market
As already seen, Indian stock markets are down more than 60% from their high point. So we can already see the impact there. As more money dries up in the world this is going to impact stock market in India further. The bull run on Indian stock markets have been due to easy availability of cheap money in the world market but this is no more the case now so we are not going to see the same high for few years now.

IT and BPO
Indian IT has always survived because of the western economies, as major western economies slowdown the work being offshored to Indian IT companies is going to freeze in near terms as client cut on all unimportant work (and some important work too). So there will be less work for IT companies in near term. This will trigger job cuts in IT in west and India. This is already happening in India, though will be on very low scale as compared to the west.
But in the long term, as the western economies start getting back on their feet, they will generate more IT work and then they will not have enough IT workers (after having laid off in current recession) so they will offshore more of that to India. Also the rush for efficiencies in the operations would drive more work to offshore so we will see better future for Indian IT in medium to long term.

Housing and real estate
Real estate in India is going to suffer badly, even if govt. tries to provide any incentive, which real estate industry is asking for. As most of growth in this industry came from speculation and false future projections, the industry is going to have a hard landing before picking up again. With likes of Lehman brothers gone with the wind, there will be less of outside money to invest in real estate in India, so realism will set in here. Already the stock prices of major real estate players are down more than a shocking 95%. It was pure speculation.

Infrastructure projects like, roads, ports, power etc. will suffer because of difficulty in getting money and general aversion among investor for any risk now. Also Indian govt. does not have money like China which can spend on such project to stimulate the economy.

General Economic Reforms
Already Indian govts. have always been reluctant to go for far-reaching reforms. Now they will be more so. And political parties like Left would be making more noises now. Seeing the mayhem in the world financial markets govt will be very cautions to go for any reforms. Also earlier US govt used to push for reforms in India but now they would be shy in doing so one for the mess in their backyard and second they do not have a face now to show to the world that free capitalism is the only way to go. This will slowdown the economy.

Non-IT export
We have already been hearing news of layoffs in export oriented industries like gems and jewelry, apparel, leather, auto component etc. The impact of this is definitely there on general economy.

General Economy
Though we hear people say that Indian fundamentals are strong and we can sustain our own growth but that is like running away from reality. Because of globalisation we are now more linked to the world economy than anytime in future so if world is suffering we cannot remain immune to it.
When all industries are slowing how can we expect the general economy to grow. Never. If IT slows down it impacts job market and the easy spenders, related ancillary industries gets affected too due to this. If there is slowdown in infrastructure then that would impact cement, steel and other industry. So we can see that almost all the industries of the economy are going through the rough phase so there is overall slow growth.
But we in India have lot of optimism as we can see the light at the end of tunnel. So this time is just for reflection and to prepare ourselves for better times which are just around the corner.

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