Thursday, June 4, 2009

A Surreal Recession For India?

General Motors, automobile giant and one of the most awe-inspiring companies of the world filing for bankruptcy protection just startles me on how spiteful this recession has really been. The past year has been both continually unsettling and intimidating when we have watched some of the largest companies, including a few we admire, fail in their struggle to stay alive. Through this whole recession, we have seen a lethal cocktail of mass layoffs, ailing banks and housing market slumber in the US all cascading to turmoil in financial markets world over.

I wonder how this recession would have unfolded for an average Indian? With all the first world economies in a synchronized recession, India is no exception. The brunt of global recession has not only affected the nation’s IT sector on all edges but has also severely decelerated export growth of the subcontinent. Economic pundits believe that it is the mid-sized IT companies that are hit the hardest by this recession. Almost 75% of Indian IT revenues come from the United States. While the outsourcing wave is still in favor of India, Indian service providers have had a rough few months when US counterparts are either slashing IT budgets or negotiating lower rates. With the cost of fuel globally reaching its all time high, the manufacturing sector is not doing great either. Indian export sector is perhaps the hardest hit by the global recession. Exports plunged to record levels and slid 21.7 percent in February. India’s Trade Secretary Gopal K. Pillai recently commented that “the decline in exports is likely to continue until September 2009”.

Owing to my multiple trips to India in the past year, I have had the opportunity to observe these effects in reality. Although in India the effects of recession are certainly discernible, however the severity of the slowdown is not comparable to her Western counterparts. One reason India emerged to be considerably unscathed from the impacts of the US recession lies in the fact that the domestic demand and consumption in most sector is still reasonably strong. The current RBI Governor commented “India's growth will continue and even if there is some moderation, it will only be a modest moderation. But it will not be a recession...There will only be a slight deceleration." Having watched the reaction and attitude of people in Chennai and the United States simultaneously, I should say that the RBI Governor seems right.

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