The document discusses whether the Indian economy has decoupled from the U.S. economy. While India's growth is increasingly driven by domestic demand, globalization has increased economic interdependence so the countries remain correlated. The 2008 financial crisis showed that shocks can still transmit between the economies through channels like exports, capital flows, and financial markets. So India has partially decoupled but is not entirely independent from global economic conditions.
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The document discusses whether the Indian economy has decoupled from the U.S. economy. While India's growth is increasingly driven by domestic demand, globalization has increased economic interdependence so the countries remain correlated. The 2008 financial crisis showed that shocks can still transmit between the economies through channels like exports, capital flows, and financial markets. So India has partially decoupled but is not entirely independent from global economic conditions.
The document discusses whether the Indian economy has decoupled from the U.S. economy. While India's growth is increasingly driven by domestic demand, globalization has increased economic interdependence so the countries remain correlated. The 2008 financial crisis showed that shocks can still transmit between the economies through channels like exports, capital flows, and financial markets. So India has partially decoupled but is not entirely independent from global economic conditions.
Copyright:
Attribution Non-Commercial (BY-NC)
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Download as PPTX, PDF, TXT or read online from Scribd
The document discusses whether the Indian economy has decoupled from the U.S. economy. While India's growth is increasingly driven by domestic demand, globalization has increased economic interdependence so the countries remain correlated. The 2008 financial crisis showed that shocks can still transmit between the economies through channels like exports, capital flows, and financial markets. So India has partially decoupled but is not entirely independent from global economic conditions.
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DECOUPLING OF INDIAN
ECONOMY FROM U.S. ECONOMY
DHEERAJ AGARWAL ISHNEET DHILLON KAPIL RUSTAGI
(26) (31) (32) INTRODUCTION
The decoupling hypothesis is the idea that business cycles
in emerging market economies have become more independent from business cycles in advanced economies in recent years. Decoupling essentially amounts to a structural break in the degree of business cycle interdependence between the two groups of economies WHAT DOES IT MEAN ? For long, the US was the engine of the ride, fuelling growth in the rest of the world by offering up its gigantic export market
The domestic economy of India is now robust enough to
sustain itself through internal demand, and export- dependency is passé
In other words, India has ‘decoupled’ or ‘delinked’ itself from
the American engine.
This implied that India would be able to eschew the impact of
an economic down-turn in the developed world To what extent is this true
??? REASONS FOR SAYING “YES”
Economic growth is picking up in india, which seems to provide a
new frontier for the world economy
Trade among the new players intensified, suggesting strong
complementarity between them
Also, the strength of our rural economy, that is completely
disconnected from the developed world is a cause for decoupling
India’s much smaller export sector that is relatively less reliant to
commodities from the us The financial system in India is in a very robust position
Savings rate is high
household debt is extremely low fiscal consolidation seems to be well under way with the government willing to take key reformist decisions. Funding costs for the huge investments required for infrastructure development will remain low due to the deflationary scare in Western economies which will key rates low for a prolonged period of time. As such both equity and debt funding should be easily available.
• Consumption growth in India will be strong with the nearly 10% expansion in Percapita GDP per year over the next decade.
• Thus both investment and consumption will drive economic growth.
REASONS FOR SAYING “NO" In the 1990s, private consumption accounted for 67% of the GDP, while the share of exports was 9%. In 2008- 09, the share of private consumption had gone down to 59%, while that of exports increased to 24.5% of the GDP.
every one per cent decline in the world GDP growth leads to around 3.71 per cent decline in Indian exports
business cycle synchronization (in terms of GDP) of the Indian economy with U.S. has increased over time, in particular during recent periods (Q1 of 2006-Q2 of 2009)
For every one per cent decline in the world GDP, Indian software exports were down by 4 per cent
The share of manufactured exports has risen from 27.1% in 1990-91 to 52.2% in 2000-01 and further to 72.3% in 2008-09. This significant export-orientation of manufacturing has also exposed the sector to external demand shocks
The services export to GDP ratio is relatively lower, although it, too, has risen from 3.2% in 1990-91 to 15.1% in 2008-09
In 2008-09, exports plus imports of goods and services formed at least half of the GDP. Same for gross capital inflows and outflows.
theshare of foreign direct investment has increased in investment (7-8% of domestic capital formation in 2007 and 2008) INDIA’S EXPORTS TO U.S.A COUNTR 2005- Grow 2006- Growt 2007- Growt 2008- Growt 2009- Growt Y 06 th % 07 h% 08 h% 09 h% 10 h%
Source : Ministry of Commerce & Industry, India % SHARE OF TOTAL COUNTRY 2005-06 2006-07 2007-08 2008-09 2009-10 Share % Share % Share % Share % Share %
EXPORTS 16.83 14.9220 12.7083 11.4140 10.9289
IMPORTS 6.3384 6.3199 8.3715 6.1118 5.8860
Source : Ministry of Commerce & Industry, India
The growth of the Indian economy has become more tightly correlated to world growth in the last decade. While the correlation was 0.43 in the 1980s and 0.59 in the 1990s, the slow and steady opening up of the economy led to an increase in this correlation to 0.92 during the period 2001-08 STOCK MARKET RETURNS OF INDIA Vs EMERGING ECONOMIES
Emerging Markets are shown by the green line, the USA by the blue line, and non-US developed stock markets by the orange line THE TEST FOR DECOUPLING - the global crisis of 2008 The financial and commercial interdependency between India and US was evident
Even though having no direct exposure to sub-prime assets, it
knocked-on indirect effects as large capital outflows were triggered by international investors
Enterprises faced tightening of liquidity in their domestic market as
well as constraints in their access to external financing
The drop in US demand led to an end to export driven growth and
disruption in intra-Asian trade, still highly dependent on extra- regional markets CONCLUSION
India is a capital-deficient country and a lot of capital is required from outside
the country to have the kind of growth rates which we aspire for. In that context, the decoupling may not really happen, but as long as the fundamentals are strong, whenever the global markets are stable, the global economies are stable, India will have a disproportionate share of inflows coming into the country.
“The decoupling theory held good till the financial crisis broke loose. The way the economy and trade contracted with the world economies tumbling, it was established that Indian economy is not decoupled with that of the world,” - RBI
The Indian economy has been decoupled, but not delinked from the rest of the world. While our economy thrives on the engines of domestic consumption and infrastructure, it is still prone to effects of the crisis that has been panning out globally in the past few months
