Tags:
Journalism of Courage
Governments all over the world will naturally be worried about the slowdown in the US economy. It is the world8217;s largest, accounting for one-third of global economic growth. There will be an impact on India; of that there is little doubt. The question is only of where the impact will be felt and how hard it will be. If the US slowdown develops into a recession the effects will be a lot worse, of course, and recovery will take longer. Negative growth rates over two quarters count as a recession. While it is too soon to speak of a recession just now, the US economy is forecast to weaken further. So far, the best assessment is that it will register a zero to one per cent growth rate and start to pick up again only by the year end or early 2002. The highly unusual timing and the size of the chairman of the US Central Bank, Alan Greenspan8217;s interest rate cut this month would tend to confirm this scenario. That being so, India should anticipate the direct and indirect effects of a severe US slowdown thisyear.
The direct impact will be on exports generally and on the software industry in particular. The US is India8217;s largest trading partner and if US consumer spending continues to go downhill a number of newly successful export outfits are going to face hard times. The US absorbs 60 to 70 per cent of this country8217;s software exports and a majority of highly qualified professionals. Stock markets felt the effects very early on and as the Nasdaq deflated, Indian indices subsided and the euphoria went out of infotech stocks. Since then the air has also been sucked out of Indian dotcoms and there are more reports of close-downs than start-ups. This was inevitable given the overvaluations and hype. Software majors such as Infosys, who have been developing markets in Europe and Japan for some time, ought to be able to ride out the Nasdaq8217;s sharp fall better than others. Reports of venture capital becoming scarce are worrying. If young people are not supported and new ideas not incubated, it will be a major loss to theIndian infotech industry. In the new environment the government will have to work harder to attract foreign investment.
