How global recession can pull down India's economy
There is a highly incorrect perspective of the global recession in India. We need to understand some dimensions of the same to understand the wider implications. This article is an attempt to focus on some of these dimensions, in some detail.
Introduction Recession happens in a country when there is a reduced demand in the market for goods and services. One event affecting jobs in one major industry can have a big impact on a recession in the market. For example, in the past two months, we have been reading that the IT industry, both in India and abroad, has been spending much less on additional fresh jobs and simultaneously reducing manpower at fairly senior levels. Those in the age group of 38-43, in the Indian IT industry, are particularly vulnerable. In anticipation of the axe that could fall on them, IT professionals are now busy changing jobs to smaller but safer companies, simply changing track to form their own highly specialized domain start-ups or even venturing into new areas like agriculture or becoming entrepreneurs in the hotel industry and so on. Not everyone can become an entrepreneur, and since the pandemic has already taught them lessons of living in smaller towns near their native villages or even in their villages where there is now good internet connectivity, they are often working from home on some projects. They are taking a big risk, but they possibly do not have much choice, either.
The uncertain times simply mean that the decision of owning a house will be postponed for a couple of years and people will live in rented houses in the metro cities or simply search for jobs in tier-2 or even tier-3 cities. Decreased demand will simply mean that people will conserve resources to the maximum extent and not spend at all.
Global recession is here to stay There is no escaping this fact of life. There is a global recession. The IT majors and the global auto giants are shedding people in thousands. There is a big effect on IT spending in India and those in India, as already explained, are not spending money on goods and services as they did some years ago. The FMCG sector is likely to feel the heat in India as well. Though the 2008 situation is unlikely to happen now, there are indications that the effect will be at least fifty percent of what had happened earlier.
We now have a situation where the middle class will soon have a no increment, no bonus year in 2023 in most of the companies. This will lead to decreased spending. Thousands of flats and apartments are now unsold in most of the metro cities, thanks to the work-from-home home arrangements. Then there is the scenario where the retailers of textile goods are not able to see sales picking up in a big way, they will slow down on fresh employment. Everywhere in the world, there will be either under-employment or unemployment, with disastrous consequences.
Tremors are likely to be felt in India The post-Covid phase saw some upward demand situations in many industries and in the commodities like steel or cement. Today, in the past six months, the situation is somewhat stagnant and the growth in markets is not picking up at all. This is likely to continue. The situation is likely to result in the growth of cheaper substitutes. For example, there is massive growth in the used car segment, while the sale of new cars is now happening at a sluggish pace.
Similarly, there is a downward movement in the growth of the service sector. Footfalls in the big malls are not picking up at all. One does not know what will happen in the next 18 months, but the situation does not look quite rosy. Inflation will also pull the growth down, as people are now not able to spend money at all.
Recession is likely to hit the big growing markets Take the beauty business for example. After years of explosive growth, there are some indications that demand is not picking up in the same manner now. People have started to spend less and this is likely to impact this fast-growth segment as well.
Similarly, there are other service sector businesses like five-star hotels that are likely to be affected as well. Foreign tourists may not come in the same numbers as before. When this happens, there is likely to be a big impact. The conference industry has already moved online, to the Webinar model. We are likely to see a massive change in terms of the impressive growth of online businesses.
People will start looking for cheaper substitutesLook at the massive growth of the cheaper varieties of food available everywhere. There are many such shops, all in the unorganized sector. The small hotels have a few places to sit, while the movable cart-type of eateries do not even have seating arrangements. Millions of people flock to these shops and the sluggish growth of branded restaurants is likely to happen again.
Rural India will not be affected much Rural India is a different ball game altogether. Rice, heat, fruits, vegetables, and spices have demanded at any time and the prices are unlikely to come down at all. There is also a big shortage of agricultural labor and since the rural folks do not move out of their houses, the overall cost of living in the rural areas is not likely to change anytime soon. This sort of situation is a cushion against a big recession in rural India.
ConclusionThe aforesaid discussion is based on current observations. A few significant points have been covered in some detail. The exact nature of the recession will be seen only after six months.