US Heading For Deep Recession; India’s Market Could Be Hit: Economist

New Delhi, Oct 7 (KNN) The United States may see a deep recession soon, and such a scenario would impact not only India's services sector, which is a key component of the country's GDP, but also bring about a lot of volatility in the bond and equity markets, a top economist told NDTV. 

In an exclusive conversation with NDTV, Neelkanth Mishra, who is the Chief Economist for Axis Bank and the part-time chairperson of the Unique Identification Authority of India, said the United States was expected to enter a recession this year and it was thought its GDP growth would fall, but that did not happen. By the end of September, people thought that there would be a "soft landing" and there would not be a recession. 

"Our analysis says however that, this year, their fiscal deficit has gone up by 4% of their GDP.  They had targeted $1 trillion - their fiscal year ends on September 30 - and they ended up with a figure of $2 trillion. If the fiscal deficit is so high, there can't be a recession. The problem for them, however, is that if they don't keep increasing the fiscal deficit, they can't sustain the economy's growth," Mishra said. 

"Even if they manage to keep the fiscal deficit flat next year, which is a problem in itself, the economy will go into a recession. Because of the fiscal deficit being so high, no one is wanting to buy US bonds. Rates are rising because of that, and this is going to lead to a contraction in demand across the world. So, the recession that will happen could be a very deep one," he warned.

Asked about how this could impact India, Mishra told NDTV that the effects could be felt through four pathways. Services growth, which is already slow, would get slower. 

"If the US sees a recession. Our IT services industry and our business services exports could be hit. Services exports make up 10% of India's exports. If they fall a lot, we could lose 1% of GDP growth," he said.

The second pathway is the impact on goods exports. The economist said goods demand will fall. "It is already low in China, Europe and Japan and was above trend in the US. This could affect India's goods exports," he warned.

The bigger risk, he said, is dumping of products in India. Mishra pointed out that If India remains the only country where demand is resilient, every manufacturer would like to sell here. This would adversely affect Indian manufacturers.   (KNN Bureau)