BEAR MINIMUM

Despite India’s corporate results showing no sign of slowing down, GDP growth rate still strong and the infrastructure story roaring, the stock markets crashed last week. The fall was due to a factor that has a very small, few sector-specific direct linkage to the Indian economy: slowdown in the US economy. And it was no ordinary fall but one that saw the indices breaching circuits, brokerages shutting shops for a day, investors losing their savings and the overall sentiment in complete mayhem. The Bombay Stock Exchange Sensitive Index (Sensex) touched an intra-day low of 15,332 on January 22--a 19.4 per cent fall from its previous of 19,013 on Friday, January 18.

Does this fall, therefore, suggest that our economy is coming under the pressure of the US slowdown? In economic lingo, is the Indian real economy decoupled from the US economy?

A consumption-driven economy with only 15 per cent propelled by exports seems to still hold the fort for India. With the US feeling the slowdown pressure, the Federal Reserve, the country’s central bank, again went in for a monetary policy review and decided a rate cut-a 75 basis point cut on Wednesday after the global markets bled on a daily basis. The impact of this slowdown is likely to show up though it is expected to be a mild one.

According to Subir Gokarn, chief economist, Standard & Poor’s, Asia Pacific, ‘‘In the event of a relatively mild recession which seems to be the most likely outcome for US, I think India is going to be impacted though it won’t be much in the short-term. At the macro level, even in the medium to long term I don’t see a significant impact on India.’’

So, if we are going to have some sort of impact what would be the likely quantum of this impact on our GDP growth rate? ‘‘Not much,’’ says Abheek Barua, chief economist, HDFC Bank. ‘‘We are anticipating a slowdown from 9 per cent earlier to below 9 per cent now. In the worst-case scenario it may go down to 8 per cent or a little below 8 per cent for 2008-9.’’ Adds Gokarn: ‘‘For 2008-9 we are looking at a growth rate of 8-8.5 per cent.’’

This does go ahead to state that our real economy in the short term is not completely decoupled, but this is largely on account of the export-oriented sectors and the global commodities and...

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