Steeper decline in US growth to effect India's growth

New Delhi, Oct 9 (UNI) Stating that India in no way stands to gain for a slowdown of the US economy, the NCAER says that the magnitude of its adverse impact will depend on how steep the fall is and how long it takes for the rebound.

There is a view among financial experts that a slowdown of the American economy will mean more funds will flow into emerging markets, including India.

The NCAER however says a downward movement of the US economy will not increase the capital available for the investment elsewhere.

The IMF's World Economic Outlook for April 2007, has made a detailed examination of what could be the impact of the US slowdown.

The analysis predicts US GDP growth at 2.2 per cent in 2007 as compared to 1.1 per cent last year. In India the growth was expected to be lower by 0.8 percentage points, while in China it was projected to be lower by 0.7 percentage.

In the advanced economies, the growth was expected to be slower by 0.6 percentage points, down to 2.5 per cent from 3.1 per cent in the previous year.

India links the global market through capital markets, trade flows and labour markets. About 12 per cent of India's exports went to US previous year, and two-thirds of India's offshore software market is in the US.

The IMF analysis says besides, a strong Rupee affecting the margins for the exporters, the fall in the the US economy will led to decline in export demand bringing down the export volumes.

Given the importance of exports to the manufacturing sector, slowdown in trade volumes could have adverse impact on industrial growth. Similarly, a slowdown in America is not likely to be a catalyst for the growth of India's services exports.

Currently, US is the main consumer of services from India.

Finally, a slowdown in the US economy does not increase the capital available for investment elsewhere.

However, the IMF analysis says India and China are beginning to have more complementary trade links. Both have large domestic markets currently seeing growth, which could sustain in the short-term.

UNI