India’s recession safeguard revealed

Being “decoupled” from global markets will help the country dodge an economic downturn, S&P has said

India is unlikely to join other leading economies in plunging into recession, rating agency S&P said on Tuesday, citing the country’s relative independence from global markets.

“[The] Indian economy is decoupled from the global economy… even though you [India] are a net importer of energy. But you have enough forex reserves on one hand and your companies have managed to maintain healthy balance sheets,” Paul Gruenwald, S&P’s global chief economist and managing director, told reporters in Mumbai. A lot depends on how global fund flows behave if there is a recession in the US and Europe, he added.

Last week, the World Bank warned that interest rate increases by central banks around the world could trigger a “devastating” global recession next year. The global economy is in its steepest slowdown since 1970, the institution added.

Central banks in the US, UK, and EU have embarked on a string of aggressive rate hikes over the past few months with the aim of curbing spiraling inflation. The consumer price index has hit 40-year highs in the US and Britain in recent months, driven partly by the economic fallout of the conflict in Ukraine and sanctions on Russia.

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Inflation in India stood at 7% year-on-year in August, which is lower than the rates in the UK, US and Eurozone. Even though India’s central bank has raised its benchmark interest rate three times this year, the country will still be doing a lot better than the rest of the world, Gruenwald said. The economy is expected to grow at 7.3% this fiscal year and at a little slower rate of 6.5% next fiscal year, according to the Indian rating agency Crisil Ratings.

India has not joined Western sanctions on Russia, citing domestic energy security concerns. Instead, the world’s third biggest energy consumer has been stepping up purchases of discounted Russian oil since the spring.

Trade between Moscow and New Delhi has more than doubled so far this year. The two nations are currently working on bilateral measures to bypass the US dollar in trade and expand the use of national currencies instead.

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