Bangalore: India is likely to suffer significant slowdown in exports, higher interest rates, instability in financial markets, increased unemployment as well as lower growth should the US fall into recessionary conditions, according to the “D’conomics” report by Deloitte in India.
Along with global integration, dependence of the Indian economy on US has grown and is evident from the fact that the US has been the second favourite destination for exporters and the third largest source of FDI inflows in the country, it noted.
“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”, the report said.
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 import capabilities of various countries as their import appetite would be dependent on US dollar, as well as the value of international reserves.
“However, it is possible that the buoyancy in agricultural sector growth, major infrastructure investments, improvements in manufacturing sector yields and a robust service sector may help India weather the negative repercussions that may arise from the US”, the report said.
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 capitalise upon and improve productivity such that the economy continues to grow, it was stated.
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.