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All articles related to Economy growth make one basic assumption that – As US is one of the biggest consumer, growth of India and China are hugely dependent on US economy and if the US economy runs out of steam Indian and Chinese economy will also suffer badly.
However, I believe it’s the contrary. If the US economy suffers from a sudden slowdown the biggest gainer would be India. However China might suffer.
First we need to understand the nature of export from these two countries. China is basically exporter of consumer goods like textile, toys, electronics etc. In times of slowdown these are the goods which face sudden drop in demand and China might suddenly face a situation of excess inventory and no demand. It might have to cut down on production leading to erosion of economy of scale and unutilized capacity.
On the other hand, India’s major share of exports is software which is more of a business good rather than consumer good. When an economy suffers a slowdown all companies are forced to cut cost and resort to outsourcing if it can help cutting cost. And IT intervention is the best way to cut cost in any business process. People will loose jobs in US and these jobs will shift to places like India which can do the work cheaper. During these periods it’s a matter of survival and political opposition against outsourcing is put on back burner. My gut feeling says that new IT intervention & outsourcing increases during times of downturn. I don’t have the figures to back my opinion but didn’t India establish itself as a software power during the Y2K downturn?
India’s growth engine is running on domestic demand fueled by increased earning in the hand of Indian professionals. As downturn should lead to more jobs flowing to India, disposable income of Indians would increase and hence economy would keep on growing.
In my opinion downturn of US economy is not something to be feared, it’s rather something to look forward to.
However, I believe it’s the contrary. If the US economy suffers from a sudden slowdown the biggest gainer would be India. However China might suffer.
First we need to understand the nature of export from these two countries. China is basically exporter of consumer goods like textile, toys, electronics etc. In times of slowdown these are the goods which face sudden drop in demand and China might suddenly face a situation of excess inventory and no demand. It might have to cut down on production leading to erosion of economy of scale and unutilized capacity.
On the other hand, India’s major share of exports is software which is more of a business good rather than consumer good. When an economy suffers a slowdown all companies are forced to cut cost and resort to outsourcing if it can help cutting cost. And IT intervention is the best way to cut cost in any business process. People will loose jobs in US and these jobs will shift to places like India which can do the work cheaper. During these periods it’s a matter of survival and political opposition against outsourcing is put on back burner. My gut feeling says that new IT intervention & outsourcing increases during times of downturn. I don’t have the figures to back my opinion but didn’t India establish itself as a software power during the Y2K downturn?
India’s growth engine is running on domestic demand fueled by increased earning in the hand of Indian professionals. As downturn should lead to more jobs flowing to India, disposable income of Indians would increase and hence economy would keep on growing.
In my opinion downturn of US economy is not something to be feared, it’s rather something to look forward to.
1 comment:
http://www.economist.com/markets/indicators/displaystory.cfm?story_id=9006670
http://www.businessweek.com/magazine/content/01_43/b3754041.htm
http://www.wsws.org/articles/2001/apr2001/imf-a28.shtml
China will sure be hit if there is a slow down in US. The trade surplus of US is -$827bn as against china +207.3bn which shows the consuming capacity of US. Walmart is the biggest retailer in US, which has 80% of its goods coming from China.
The IT, ITES and BPO jobs in India have 60% of the clients in US. That means roughly 60% of revenue coming from US.
Although Indian Industrial growth have fuled in last 5-10 years but I would say that IT has a major contrubution for the change in Indian Economy.
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