Every employee has a question about whether India will feel the impact of the US Recession. India's Finance Minister, Nirmala Sitharaman, stated that the GDP of the US fell 0.96% in the 2nd quarter, following a 1.6% decline in the 1st quarter, which they called the Recession.
“There is no reason for India to get into a recession,” she said, adding that, “according to a Bloomberg survey done by economists, there is a zero probability of India slipping into Recession.” However, given how India’s IT Exports are directly affected by US Recession, that may not entirely be true.
The US Recession will have a direct impact on India. It can minimize India’s exports due to heavy trade with the US. India’s exported goods and services are worth nearly $71.51 billion.
Recession’s impact on Indian IT sector
Even though the official forecast was zero, the Indian economy will slow down as a result of the US recession. It is important to note that significant changes have occurred in the operations of US-based Software Development Companies operating in India.
The US market provides 40% of the revenue for the Indian IT sector. Companies like HCL, Infosys, TCS and other IT and ITes-related organizations are already feeling the heat of the Recession. However, the UK, Germany, and France contribute significantly to the revenue. In the event of an economic downturn, India’s rate of IT spending will continue to decrease.
We already know how the 2008 global financial crisis impacted the BFSI and IT sectors in India. Therefore, we must be on guard since technical spending will drop if the economy continues to drop.
The US is the second largest export market for the UAE while India can take care of its major needs. However, India imports over 80% of its crude oil, making it severely dependent on imports for its energy needs. Fears of a recession have already caused oil prices to collapse from their high of over US$134 per barrel this year to below US$100 per barrel. The consumption would be severely affected if the recession spread to other economies, which may result in a drop in oil prices.
Recession’s impact on Recruitment in India:
As most of the companies in India work for the US, they are witnessing how hiring has slowed down. As a result, there could be higher unemployment than previous years, lower wages and income, cuts in employee benefit or aid among other things.
Wipro announced its June quarter profit at Rs. 2,563 crore, a decline of 20.9% from the prior year. Its operating margin for the IT services sector division fell by 200 bps quarter over quarter to 15%. Similarly, many other companies also are seeing a direct hit at their revenues.
A debt crisis in one country can, and frequently has, caused economic misery in other countries, whether in the private sector or the government. A tightening of financial circumstances, such as an increase in interest rates, a slowdown in trade and economic growth, or even just a sharp drop in confidence, might cause.
(Author: Praveena Battila is a chirpy & inquisitive digital marketing executive at TechDoQuest.)