Page 5 - The Indian EYE 080522

BIG STORY AUGUST 05, 2022 | The Indian Eye 5

As the US economy heads into a recession, the Indian IT firms are likely to feel the pain Cheap crude oil from Russia has helped India’s import bill a lot

to the war in Ukraine and supply dis- oping economies, including Russia, predictor of a recession in the off- In other words, the Fed believes
ruptions, thwarted the nascent recov- South Africa, and Brazil, saw an up- ing. As of Wednesday, the yields on that the risks of doing too little (to
ery. The Reserve Bank of India raised ward revision in their economic fore- 2-year, 5-year and 10-year US bonds contain inflation) are higher than the
rates by 90 basis points in two moves casts on improved outlook. were 2.97%, 2.83% and 2.78%, re- risks of doing too much.
to temper price gains and is scheduled Nevertheless, the IMF’s growth spectively. Now, as talks of a possible reces-
to hold its next review from Aug. 2-4. forecast for India is among the most In his statement on Wednesday, sion in the US economy gaining trac-
Purchasing managers’ surveys optimistic. The Reserve Bank of India Fed chief Jerome Powell made no tion with brokerage houses expecting
showed India’s services activity rising has projected the economy’s growth bones about the Fed’s determination it to hit in the next one year, analysts
to the highest level in more than a de- for 2022-23 at 7.2%. to bring inflation under control even feel that it will adversely affect the
cade. At the same time, expansion in According to the latest update, at the cost of destroying economic IT spending of the US as well as Eu-
manufacturing slowed, pulling down global trade growth in 2022 and 2023 growth and rising unemployment in rope and, in turn, hit the information
the S&P Global India Composite will likely slow more than expected, the short term. technology (IT) companies in India,
PMI Index a tad in June. reflecting the decline in global de- “We are highly attentive to infla- including TCS, HCL Tech and Infos-
But India’s trade deficit widened mand and supply chain problems. tion risks and determined to take the ys. Indian IT firms depend on the US
to a record $26.2 billion in June as im- Meanwhile in the US, the infla- measures necessary to return inflation market for around 40 per cent of their
ports rose faster than exports, raising tion rate is at over 9% and the Fed’s to our 2 percent longer-run goal. This revenues.
concerns about a further slide in the target inflation rate is 2% — that’s a process is likely to involve a period of On the likelihood of a reces-
rupee and a bigger current account gap of 7 percentage points. Histori- below- trend economic growth and sion, US-based brokerage firm
deficit. Petroleum products, coal, and cally, every time the Fed has tried to some softening in labour market con- Goldman Sachs in its report has
gold primarily contributed to the rise bring down inflation by more than 2 ditions, but such outcomes are likely said it sees a 30 per cent probabili-
in inbound shipments, while exports percentage points, the US has wit- necessary to restore price stability and ty of US entering a recession in the
took a hit amid fears of a global re- nessed a recession. to set the stage for achieving maxi- next year and a 25 per cent condi-
cession. The ongoing inversion of the mum employment and stable prices tional probability in the second year
In another sign of concern, the bond yield curve is another robust over the longer-run,” he stated. if one is avoided in the first. Bank
International Monetary Fund (IMF) of America Securities also sees a
on Tuesday slashed India’s economic roughly 40 per cent chance of a US
growth forecast to 7.4% from 8.2% it recession next year, with inflation
estimated in April, citing the econo- remaining persistently high.
my’s vulnerability to external shocks Alok Bansal, MD and global
and rapid monetary policy tightening. head (BFSI business) of Visionet Sys-
The multilateral agency also cut tems India, said, “In March this year,
India’s growth forecast for the next India saw the highest inflation rates
fiscal by 0.8 percentage points to 6.1% since October 2020 with a 6.95 per
amid growing economic risks. cent spike. We cannot also overlook
However, despite the growth the possibility of mild repercussions
downgrade, India will remain one of from the US recession affecting us.”
the fastest growing major economies He added that the contribution of
in the world in 2022-23 and 2023-24. the US market in the revenues earned
Only Saudi Arabia, estimated to grow by Indian IT companies is around 40
7.6% in 2022, is expected to outpace per cent. A big part of the revenue
India. However, growth in the King- also comes from the UK, Germany
dom is expected to slow to 3.7% in the and France.
following year. As the world’s top economies
In comparison, China’s growth face big challenges, there are chanc-
is estimated to slow to 3.3% in 2022 Opposition parties MPs stage a protest against the issue of inflation near Mahatma Gand- es of Indian growth too slowing down
from 4.4% estimated earlier by IMF. hi’s Statue at Parliament in New Delhi on Friday (ANI) further. It is not a good sign for the
Other emerging markets and devel- government and people of India.

www.TheIndianEYE.com