US recession has India Inc, economists worried

December 2nd, 2008 - 7:53 pm ICT by IANS  

New Delhi, Dec 2 (IANS) With recession now confirmed for the first time since 2001 in the US - India’s largest market for goods and services - the industry and economists are worried alike, particularly over its impact on exports and stock markets.They said India was unlikely to plunge into recession, having logged a growth of over nine percent in the past few years and managing 7.8 percent expansion in the first half of this fiscal. But a slowdown, they said, was imminent.

They also sought to point out that the US recession comes against the backdrop of India’s merchandise exports during October falling for the first time in five years and stock market indices dipping over 50 percent over the past year.

“Exports in October were 12 percent lower than in the same month of 2007. This is a clear indicator of the effect of recession in the US and Europe on India,” said D.K. Joshi, chief economist, Credit Rating Information Services of India Ltd (Crisil).

“The global economic slowdown has also resulted in a lower demand in their economies and only few buyers are coming to India now. This has also led to a fall in the prices of export goods,” Joshi told IANS.

India’s merchandise exports during October were valued at $12.8 billion, 12 percent lower than the $14.6 billion achieved in the like month of last year.

Cumulatively, exports totalled $108 billion in the first seven months, giving rise to doubts if the target of $200 billion for the fiscal will be met. India had exported goods worth $155 billion last year, just short of the $160 billion target.

According to Dalip Kumar, the head of projects with think tank National Council for Applied Economic Research, India has to ensure that its fiscal and monetary policies ensure confidence in the economy.

“We are exporting more and importing less. We are losing rupees but gaining little foreign currency. Our economy can revive only if we bridge the import-export gap,” Kumar said.

Ratings agency Moody’s also said the bottom of the global financial crisis was still far from sight that was a huge concern to exporters across Asia, including India, which depended heavily on demand in the US and Europe.

“India’s export performance is expected to be lacklustre for the rest of this year and also much of 2009 as consumers and businesses around the world have cut back on expenditure,” said Sherman Chan, an economist with Moody’s

Monday had seen the benchmark Dow Jones Industrial for the Wall Street plunge 680 points as the National Bureau of Economic Research (NBER), a non-profit organisation, declared a recession in the US.

“All evidences, other than the ambiguous movements of the quarterly product-side measure of domestic production, confirmed that conclusion,” said NBER, setting a gloomy outlook for Indian economy, particularly for its exports.

The bureau, which monitors the US economy closely and whose opinion on recession is taken as an official position, also said that the contraction in the US had started last year.

“Slowing external orders will also hurt local manufacturers, which will in turn curb job creation,” said the bureau, an opinion shared by the Associated Chambers of Commerce and Industry (Assocham), a leading industry lobby.

“Increasing decline in exports would mean slashing of jobs. The government should roll out a package in terms of incentives to bail out exporters,” said D.S. Rawat, president of the chamber.

According to Joshi, the global slowdown in general and the US recession in particular has also discouraged inflows from foreign institutional investors to India, who had otherwise been driving up Indian equities in the past several years.

“Foreign funds have already withdrawn over $10 billion since April. They could withdraw more funds if the slowdown continues for a longer period,” said Joshi, adding such institutions were facing redemption pressures back home.

Moody’s said any government assistance to struggling exporters was only a “band-aid” solution as the root problem was recession in most parts of the advanced world that had made consumption sluggish.

“India is decelerating on all engines. There is not much the authorities can do to boost growth,” Chan said, adding the loosening of monetary policy has led to the rupee ruling at over 20 percent lower than its value at the year’s start.

“Exports are not expected to stage a solid rebound until market confidence recovers.”

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