Global Uncertainties – Will they fog the Indian growth story?

India has routinely showcased the ability to withstand global economic, geopolitical. and other various crises. Will it be able to navigate turbulent times in the future as well?

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By Parry Singh

In recent times, the world has been experiencing unprecedented uncertainties due to geopolitical tensions, global banking crises, and the potential for an economic downturn. These factors have created an atmosphere of concern and insecurity, which may inevitably impact India’s growth prospects. However, India has demonstrated its ability to withstand such challenges in the past, raising the question of whether the country can once again navigate these turbulent times.

One of the primary concerns is the stress on global banks, particularly in the US and Europe, which are struggling due to soaring interest rates and self-inflicted wounds. A key factor contributing to this crisis is the reluctance of banks to lend during times of economic uncertainty. According to US Treasury Secretary Janet Yellen, “If banks are under stress, they might be reluctant to lend. We could see credit become more expensive and less available.” This tightening of credit could trickle down to the Indian economy, dampening growth prospects as businesses face challenges in securing loans and financing for expansion.

Moreover, the possibility of a recession in major economies like the US and Europe poses a significant threat to India’s export of goods and services. As demand in these markets dries up, the Indian economy may face a reduction in export revenues, impacting overall growth. Additionally, geopolitical tensions and the fog of war have the potential to disrupt global commodity and oil markets, resulting in fluctuations in prices that could further strain the Indian economy.

Despite these challenges, it is essential to consider India’s resilience in the face of global economic turmoil. During the Global Recession of 2008, India managed to weather the storm due to a combination of factors, such as its reliance on agriculture, the absence of toxic financial products in its banking sector, and the sustained growth of its IT and BPO exports. Furthermore, foreign direct investment continued to flow into the country, demonstrating confidence in India’s long-term prospects.

Dynamic NBFCs in India continue to see loan demands from over 2,000 small businesses a year. SME growth, if fueled, will help India emerge from the current global uncertainties and maintain its growth trajectory.

While the current global uncertainties may cloud the Indian growth story, it is crucial to recognize the country’s inherent strengths and its ability to adapt to evolving economic conditions. India’s rapidly expanding middle class, robust consumer demand, and growing technological capabilities offer a solid foundation for continued growth. The government’s commitment to implementing reforms, investing in infrastructure, and fostering innovation further enhances India’s potential to navigate these uncertain times.

In conclusion, while global uncertainties, banking crises, and the fear of recession may pose challenges to the Indian growth story, the country’s history of resilience and adaptability should not be overlooked. India has emerged from previous economic crises relatively unscathed and has the potential to do so again. However, the government and businesses must remain vigilant and proactive in addressing these challenges to ensure that India can continue on its path to becoming a global economic powerhouse.

(Parry Singh, Founder & CEO, Red Fort Capital. Views expressed are author’s own.)

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First published on: 29-04-2023 at 11:55 IST