Will India escape from impact of global recession this time?

It looks like the world is staring at yet another economic turmoil. Signals emanating from the US, the world's largest economy, and Europe, are pointing at this possibility. The US economy slipped into negative territory in the first six months of this year. The US GDP (gross domestic product) contracted by -1.6 per cent year-on-year during January-March 2022 while it registered a decline of -0.6 per cent in the subsequent quarter i.e. April-June period. Technically, an economy is in recession if it contracts for two consecutive quarters or for six months on a trot. That way, the US economy has already been battling recessionary streaks. But it rebounded in the third quarter (July-August 2022), posting a year-on-year growth of 2.6 per cent. However, it is said that more pain awaits the US economy in 2023 as it is facing high inflationary pressures which will invariably lead to rise in interest rates. There will obviously be a direct impact on economic growth if the cost of funds goes up.

Like in the US, high inflation is also haunting Europe. It was estimated that inflation in the Eurozone had reached a record level of over 10 per cent in September. Though the European region witnessed an economic growth of 0.7 per cent in April-June and 0.2 per cent in July-September 2022, experts say that the continent will slip into recession during October-December period this year.

Not long ago, the world went through an enormous economic pain thanks to the Covid-19, a pandemic triggered by the novel coronavirus that originated in China. As a consequence, the world GDP shrank 3.2 per cent in 2020. Of course, it bounced back and clocked an upswing of 5.8 per cent in 2021. But even before the world could barely recover from the shocks of the coronavirus onslaught, another threat to its growth stability came in the form of Russia's military misadventure in Ukraine. The never- ending Russia-Ukraine war is taking a heavy toll on the global economy. As Europe is heavily dependent on Russia for gas, the unexpected war has led to an energy crisis in the continent. As a result, inflation as well as energy prices skyrocketed to record levels. While the Chinese-born coronavirus caused a worldwide economic pain in 2020, the current economic problem has its roots in the Russia-Ukraine war. For the world to go through two such enormous economic pains in a short span of three years is an Herculean task and unheard-of in recent human history. Furthermore, there is every chance that the so-called cryptocurrency market, currently pegged at over $855 billion, will collapse at some point of time. If that happens, the world economy will go through more pain. But the moot question now is whether the upcoming global recession will impact India or not.

Last month, the International Monetary Fund (IMF) termed India as a bright spot on a dark horizon. IMF Managing Director Kristalina Georgieva herself made this comment at the IMF's recent annual meeting in Washington. The IMF expects the Indian economy to grow at 6.8 per cent in 2022 and at a little slower at 6.1 per cent in 2023, thus retaining the tag of the world's fastest growing major economy. Interestingly, China, as per the IMF's recent World Economic Outlook report, will clock a lower upswing of 3.2 per cent and 4 per cent respectively in the same period. With recent reports of resurgence of the Covid menace in the communist country, the end-result on the economic front will likely be lower than these estimates. But the Chinese leadership has the knack of turning economic tides in its favour. However, let's save the topic for another day.

Apart from the IMF, the Organization for Economic Cooperation and Development (OECD) pegged India's growth rate at 6.6 per cent this year and 5.7 per cent in 2023. According to it, global growth in 2023 will be 'strongly dependent' on major economies in Asia, including India. Moody's Analytics, a financial services arm of global rating agency Moody's, also came out with a report, saying there is no likelihood of the Asia-Pacific (APAC) region slipping into recession in near future. That means there will be no recession in this key region that also includes India. It however said the economic growth will slow down in India during 2023.

Though the IMF and other global bodies are painting a rosy picture about India amid widespread economic gloom, it's too early to come to a firm conclusion that India will escape from the clutches of the recession this time. For, there is no clarity yet on how long the Russia-Ukraine war will last and how it will pan out. Furthermore, the Covid-19 is raising its ugly head again in China. So, the situation is still fragile. Of course, India will go for the General Elections in 2024 to elect a new federal government and Narendra Modi will aim at a third consecutive term as India's Prime Minister. If he wins, it will be the first such achievement after Pandit Jawaharlal Nehru's feat in the 1950s. Therefore, the Modi government will be extra careful to lessen any economic pain just before the key elections. Anyway, India and its policymakers will have to tread carefully for the Indian economy to post a meaningful growth this fiscal, next fiscal and beyond. There is no second opinion about it.