Now that it's proven that Uncle Sam is in poor financial health, everyone's been wondering what this means for India. Even when India was a protected economy, whenever something happened in the United States, we felt the ripples (if not the tremors) back here.
This time around, India is more globalized than before. Most sectors are open to foreign investment and capital from other countries flows in more freely. Logic tells me that India should be more vulnerable today.
It's not surprising then that everyone--from ministers to corporate honchos and the man on the street--has a view on the impact of the financial meltdown. Some lucky people, like yours truly, can use their blog to express their views.
The American economy is undoubtedly going through its worst financial crisis since the Great Depression of 1929 (the Senate's bailout package notwithstanding). Every time the U.S./global economy go through turbulence, India has felt its impact. Whether it was the oil crises of the 70s or the slowdown when the dot-com bubble went bust, India has never been insulated from upheavals in the global economy.
Despite being more globalized, India is today more insulated from the global instabilities than ever before. All thanks to a strong and growing domestic market.
While it is true that there are retrenchments happening all across the IT-ITES (IT and IT-enabled services) sector, this is more in the form of separating the wheat from the chaff. Such consolidation is inevitable, and necessary. By and large, no company is showing the pink slip to performers.
Even this is nothing but a short-term phenomenon (that should last six to eight months). Post that, offshoring should pick up, since American companies will be compelled to cut costs further in the wake of the recession.
A recent study by the Everest Research Institute points out that in the medium-to-long term, the sub-prime crisis will accelerate global sourcing adoption, as financial institutions push the envelope on offshoring to cut costs. The institute predicts business process outsourcing (BPO) from the financial services sector has the potential to increase 40 to 45 times the current market size over the next five years. And within five years, the institute projects that the addressable opportunity for global BPO by the financial services sector will reach US$145 billion to US$165 billion for India-based services--the hub of global sourcing for financial services.
Indeed, there is too much happening in India, which is fairly independent of what's happening in the United States. Look at the infrastructure projects, the R&D (research and development) captives, the work happening in rural areas (from banks to IT companies, government, telecom operators and BPOs--everyone is busy taking technology to the villages of India), the growth in retail, and so on.
Essentially, these are all triggered by domestic demand. India's growth is consumption-led, and hasn't been managed by the government through infusion of large-scale investments or by banks (and their artificial interest rates).
For once, India is well connected with the global economy, yet insulated (to a large extent)!