Recession In India Coming Soon

1. RECESSION IN INDIA COMING SOON?

2. The world economy is in mess, and major economies like the US, UK, Europe, and China are experiencing a recession. Advanced economies like the US and Europe are already experiencing inflationary pressures after a very long time. A recession is defined as a long-term downturn in a nation's economic activity that impedes its ability to expand economically. The world's economies are interconnected in the current era of globalization, and in a globalized economy, no country suffers in isolation. For this reason, inflation in the world's main developed economies is a concern for an economic slowdown in India as well.

3. Factors that led to Recession ◦ Fast Economic Recovery While US inflation has recently been stuck between 8 and 9%, it has reached a record high of 9.9% in the Eurozone. A successful COVID immunization programme in the US has resulted in a dramatic rise in consumer demand and accelerated economic growth, which is one of the causes of the severe inflation in this surprisingly quick economic rebound. During the lockdown, the government pushed billions of dollars into the economy, which caused the demand for goods and services to exceed the supply, leading to inflation. However, the supply was unable to keep up with the growth in demand, which caused inflation to reach historic highs. ◦ Russia-Ukraine war The ongoing conflict between Russia and Ukraine has also significantly contributed to the rising inflation. 10% of the world's wheat export comes from Ukraine, which has contributed to soaring food inflation everywhere. Due to the war, many nations have imposed sanctions on Russia, which have prevented the supply of many products and services and consequently led to inflation.

4. ◦ Inflation in China There have been regular lockdowns in China because to their zero covid policy, which has boosted inflation there. China is also the major supplier of consumer and business goods to the US, which has contributed to the rise in US inflation. Inflation in China's intermediate production simply translates into inflation in US final products. ◦ Increase In Nominal Wage Rate Since the second half of 2020 has there been an acute increase in labour demand in the US, leading to an increase in nominal wages. As a result, businesses are passing on this higher labour cost to consumers in the form of higher product prices.

5. Impact of the US Recession in India ◦ Indian IT sector could get affected The biggest marketplace for the Indian IT sector is the United States. 61.4% of Infosys's revenue in FY 2022 came from the USA, while 25.2% came from Europe. The United States is where 52% of the total income of the Indian MNC Wipro and 52% of the total revenue of TCS originate. Thus, it becomes clear that the recession in the US and Europe has a significant impact on India's IT majors. The profitability of these businesses will be directly impacted by the US and European economies. There is a 38% possibility, according to a Bloomberg estimate, that the US economy will enter a recession. and as a result, both businesses and investors have switched to a conservative mode, which may lead to an impending recession in India by the end of 2022 or the following year.

6. ◦ Higher costs of import goods Due to historically lower market rates in these nations than in India, rising inflation in the US will force their federal bank to raise interest rates, which will have an impact on the Indian enterprises that have been using the USA as a source of funding. Low profitability brought on by the high cost of capital would eventually result in lower revenue and fewer service exports from India. Since India imports many raw materials from the USA and Europe, rising interest rates in the US would result in rising inflation in India, which will force the RBI to tighten its monetary policy and raise interest rates.