According to a new report by consultancy firm Deloitte, India is likely to suffer a significant slowdown in exports, higher interest rates, instability in financial markets, increased unemployment and lower growth should the US go into a recession.
Along with global integration, dependence of the Indian economy on the US has grown, as is evident from the fact that the US is the second favorite destination for exporters and the third largest source of FDI inflows in India.
Deloitte's D'conomics report said that "With such deep interconnectedness through trade, finance and confidence channels, it would be naive to presume that India will be unaffected by the developments in the US economy."
With a high degree of global financial integration, any reduction in US balance of trade would have negative effects on many countries. A depreciated dollar would diminish the value of reserves held by various countries, including India. This would also impact the import capabilities of various countries, as their import appetite would be dependent on the US dollar, as well as the value of international forex reserves.
The report said that "However, it is possible that the buoyancy in agricultural sector growth, major infrastructure investments, improvements in manufacturing sector yields and the robust services sector may help India weather the negative repercussions that may arise from the US."
The report also indicates India's global competitiveness is suffering, with other countries effectively eating into India's global share of world trade. Recently concluded trade and economic cooperation agreements with Singapore, Japan and Malaysia and a Free Trade Agreement with ASEAN are important steps for Indian businesses to capitalize upon and improve productivity such that the economy continues to grow.
The report concluded the time is right to frame policies and remain optimistic about economic prospects, as building and restoring consumer confidence is critical to avoid the consequences of a prolonged economic slowdown.
(Sourced from www.financialexpress.com)
