Ever since the sub-prime crisis broke out in the US, questions have been raised on whether India can safely ride out the storm.
We have already seen the impact on the stock market and it is hard to imagine that India escaping unscathed if the crisis deepens.
However, some economists believe that the impact will be marginal chiefly because of India’s low reliance on exports and weaker linkages to the global economy when compared with other Asian countries such as Malaysia, South Korea and China.
Goldman Sachs estimates that a 1% drop in US GDP growth would shave off only 0.25% India’s growth.
At the other end of the spectrum, Morgan Stanley’s Chetan Ahya says the rise in global risk appetite had contributed to India’s growth. But if investors remain risk averse in the coming year, it would hurt India’s growth story by reducing the country’s access to risk capital and by increasing funding costs.
After enjoying the rewards of the Indian and global growth story, it is probably time to start worrying about the pain that an economic downturn will unleash.