scorecardresearchIs India insulated from global recession?

Is India insulated from global recession?

Updated: 12 Nov 2022, 10:20 AM IST

India’s robust forex reserves have ensured the Indian rupee does not fall as much as other emerging market currencies did against the dollar

global recession

global recession

A lot is not well in the global economy. The multi-decade high inflation has caused trouble as the global economy emerges from Covid-19 fallout. The rising inflation is nudging global central banks to hike interest rates. 

Last week, the US Federal Reserve did a ‘jumbo’ rate hike of 75 basis points to 3.75 per cent to 4 per cent. In fact, many other developed economies such as Britain, Japan, Norway and Sweden are in the rate hike mode. India is not an exception. 

The Reserve Bank of India hiked policy rates by 50 basis points to 5.9 per cent in its September policy meeting in the backdrop of rising inflation which is well above the RBI’s comfort level of 6 per cent.

The country, however, is still doing better than the rest be it developed or developing economies. If Morgan Stanley’s latest report on India is to be believed, the country is on track to become the third largest economy by 2030.

“India has the conditions in place for an economic boom fueled by offshoring, investment in manufacturing, the energy transition, and the country's advanced digital infrastructure. These drivers will make it the world's third-largest economy and stock market before the end of the decade, we estimate,” the global investment banker says in its report titled ‘The New India’.

The four global trends -- demographics, digitalisation, decarbonisation and deglobalisation are favouring what Morgan Stanley termed as New India.

The signs are already visible. The country is the fastest growing economy in the world. The International Monetary Authority estimates India’s GDP to grow by 6.1 per cent in FY23 at a time when it has estimated global GDP growth rate at 2.7 per cent for 2023. Emerging and developing Asia is expected to grow at 4.9 per cent, while China’s GDP growth is estimated at 4.4 per cent.

India’s robust forex reserves have ensured the Indian rupee does not fall as much as other emerging market currencies did against the dollar. Rupee depreciated by 11 per cent against dollar so far this calendar year till October 31, while Malaysian Ringgit, Philippine Peso, Thai Bhat and Chinese Yuan fell in the range of 13-15 per cent during the same period. Brazilian Real, Mexican Peso and Indonesian rupiah did better than Indian rupee.


Indian rupee vs EM currencies - in CY22
Currency% Change in CY22 (YTD)
Brazilian Real5.54
Mexican Peso 3.50
Indonesian rupiah -9.44
Indian Rupee-11.36
Malaysian Ringgit -13.46
Philippine Peso-13.71
Thai Bhat-13.94
China Yuan-14.93
South African Rand -15.17
South Korean Won-19.83

Data as on October 31, 2022
Source: Motilal Oswal Financial Services, Bloomberg

There is another positive. According to Motilal Oswal Financial Services, India has emerged as a shining star in CY22 registering a healthy outperformance amid varied global macro headwinds including, inflation, interest rates, currency, and geopolitics. While most global equity markets are down 20-25 per cent so far this calendar year, India is up 4 per cent (in local currency). It is the third best performing market after Brazil and Indonesia. Even in dollar terms, it is among the top five after Brazil, Indonesia, Mexico and Singapore.


India versus global markets in CY22 - in rupee terms
CountryCY22 YTD Chg (%)
South Korea-22.97
Hong Kong-37.23

Data as on October 31, 2022
Source: Motilal Oswal Financial Services, Bloomberg

Moreover, the country’s share in global market capitalisation has been increasing. It hit an all-time high of over 4 per cent in September 2022. The share moderated to 3.5 per cent in October but it is still above its historical average of 2.5 per cent, Motilal Oswal report noted. In fact, India is among the top five contributors to the world market-cap after the US, China, Japan and Hong Kong. Top 10 contributors account for over 80 percent of the global market-cap.

All cannot be hunky dory though. The existing growth drivers in India might hold a long-term potential, there are short-term blips to take care of. Although the World Bank accepts India may not be as vulnerable as some of the other countries, it is still in tough weather due to rising commodity prices, global monetary tightening and global slowdown hurting exports.

In fact, the World Bank reduced India’s GDP forecast for 2023 to 6.5 per cent from 7.5 per cent predicted in June. “Private investment growth is likely to be dampened by heightened uncertainty and higher financing costs,” it says.

Is India insulated from the global recession? Not necessarily. But it is surely better placed than others to weather it.

Aprajita Sharma is a freelance journalist and a certified financial planner. She can be reached at @apri_sharma on Twitter and LinkedIn.

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First Published: 12 Nov 2022, 10:20 AM IST