Impact of Global Recession on Indian Economy: A Brief Analysis

With major nations facing sluggish economic growth and rising inflation, India’s economy is being protected from recessionary pressures by its strong rapid infrastructure and domestic demand. India finds itself in a sweet situation by being one of the fastest-growing economies and is comparatively isolated from the current pessimistic view, despite the World Bank highlighting the global recession in 2023 due to the steady rising rates implemented by central banks throughout the world. Let’s examine the potential impact of global recession on India’s economy or how it will likely perform through the unsteady times to come.

What is the Global Recession?

Global recessions are situations in which significant economic and financial disruptions take place concurrently in several different nations. Economic circumstances continue to tighten, corporate morale to fall, and political uncertainty to rise amid global recessions. The impact of global recession, according to the World Bank and the International Monetary Fund^[1], is defined as a yearly decrease in the real global GDP per person that is followed by a significant decline in several other economic activity indicators such as-

A prolonged period of worldwide economic contraction is referred to as a global recession. As trade links and financial institutions spread economic difficulties, the impact of global recession spreads from one country to another, including more or less coordinated recessions in many national economies. A decline in global GDP is one of the factors that the International Monetary Fund evaluates to define global recessions. 

What Led To the Global Economic Crisis?

Its definition, “a prolonged time of instability and insecurity,” is a vile combination that perfectly sums up the state of the globe as 2023 begins. The invasion of Ukraine by Vladimir Putin has sparked the largest land conflict in Europe after 1945, the greatest nuclear threat ever since the Cuban missile disaster and the broadest set of penalties since the 1930s. High inflation rates during the 1980s and the major macroeconomic issue in the modern age of central banking have been fuelled by rising prices. Long-held beliefs in the personal liberty of borders, the non-use of nuclear weapons, low inflation, and the continuity of electricity in developed nations have all been challenged at once.

This chaos is a result of three shocks working together. Geopolitical is the largest. The US-led post-war global order is under threat, most plainly from Mr. Putin and most significantly from the steadily deteriorating relations between the United States and China under President Xi Jinping. The constancy with which the United States and other European nations reacted to Russia’s assault may have given “the West,” and especially the western alliance, new life. But with that distance between the west and the countries has grown. 

Most people on Earth reside in nations that oppose Western sanctions against Russia. The universal principles that underpin the Western order are explicitly rejected by Mr. Xi Jinping. The world’s two largest economies are starting to become economically disconnected, making China’s invasion of Taiwan less unlikely. Other long-standing geopolitical certainties are also beginning to show signs of weakness, like the American-Saudi convenience-based alliance. These situations lead to the Global Recession and the impact of global recession on numerous countries at the same time.

Impact of Global Recession on Indian Economy

 India has felt some of the worst impact of global recession, although not to the extent that many had feared. Global layoffs, especially in the tech sector, affect the employment front, especially for workers in India. Employee layoffs were also necessary at some Indian start-ups. The Indian economy does, however, have a strong preference for services overproduction, which helps to reduce risk and strengthens its resilience to downturns.

In addition, one can anticipate a constant increase in the middle class and a growing, rising population to support the market for manufactured goods. GDP growth rates were skyrocketing in the majority of the world’s economies amid the global economic crisis of 2008. The increase in goods and service consumption was the main reason for this. Despite increasing consumption rates, there had been a significant demand gap, which drove up the price of commodities.

• The soundness of the Indian economy can contribute to the nation’s favourable growth in the economy. India would consequently not experience the impact of global recession as severely as other countries.

• India’s exports to the United States have increased over time. Despite the impact of global recession on Indian economy, we were able to weather the terrible financial distress of September 2008 and continue to grow.

• As numerous European banks failed, the downfall of many stock market indices and huge losses in the valuation of the Indian market were all signs of the crisis and Its expansion into something like a global economic shock.

• Because India’s businesses had important outsourcing contracts with American companies and clients, a recession in the American market was the impact of the global recession, which was unquestionably bad news for India.

• India’s GDP is expected to grow to $10 trillion by 2035 and take the third worldwide by 2032, according to the analysis.

• Given that the US is among the world’s major powers, the impact of global recession, whether it is minor or severe, its effects will ultimately be felt globally.

Can India Escape The Impact Of Global Recession?

While the economies of the USA and much of Europe overheat owing to inflation and structural issues, the Indian economy continues to grow on the strength of domestic demand and the services sector, shielding it from external pressures. The “Make in India” program, which aims to create 100 million new jobs and position India as a strong rival to nations like China, is proof that the central government’s efforts to develop India as a major manufacturing powerhouse are turning a profit.

It would support the Indian economy even more and should aid in overcoming any interruptions in consumption or investments from global markets and businesses. In reality, the emphasis on other industries like renewable energy, defense research, logistics, and warehousing reflects well the Indian economy’s potential for future growth.

A strong middle-class domestic consumption and an iron-willed dedication to supporting local industries are just a few of the factors that are limiting the serious nature of a harmful global recession. It makes the Indian economy the finest spot here on the global scene and shields the economy from the significant impact of global recession.

Global Recession 2008

Everyone must be asking what shielded the Indian economy from the impacts of the global recession in 2008. The Great Recession had already begun before 2008. When property values began to drop in 2006, the first warning signs emerged. Then the Federal Reserve reached this subprime mortgage crisis by injecting $24 billion in liquidity into the banking system by the end of August 2007. The Troubled Asset Relief Program, a $700 billion bank bailout, was approved by Congress in October 2008. In February 2009, Obama put up the $787 billion plan for an economic stimulus, which helped stop a world recession.

Factors that Saved the Indian Economy from the Impact 

• Even though India’s exports of goods were significantly harmed by the Great Recession, exports of IT and BPO were unaffected.

• The amount of foreign direct investment rose despite the financial crisis.

• At the time, Indian banks and financial institutions mostly disregarded the toxic mortgage-backed assets and credit that brought down western banking institutions.

• While investors stopped pouring money into India, long-term business owners and factories kept working on their current initiatives.

• Numerous reasons prevented the Indian economy from suffering the impact of global recession.

• Owing to India’s economy’s reliance on agriculture, it did not experience high rates of unemployment like other affected countries.

Conclusion

The Covid-19 epidemic is the primary cause of this particular recession. News isn’t always bad, though. Since the nature of the current recession differs from previous recessions, it also appears that we will be able to emerge from it more quickly. It may be because a temporary economic shock, like a spike in the price of oil, allows the economy to recover more quickly than one that requires the economy to make long-term changes. In this write-up, we have covered the impact of global recession on the Indian economy. To learn more interesting things related to hiring trends, IT recruitment services, problems of the country, etc., keep reading our blogs. 

Read our Article: Economic & Non-economic Impact of Layoffs on Employees: An Overview