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DECOUPLING ppts

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    DHEERAJ AGARWAL ISHNEET DHILLON KAPIL RUSTAGI

    (26) (31) (32)

    DHEERAJ AGARWAL ISHNEET DHILLON KAPIL RUSTAGI

    (26) (31) (32)

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    The decoupling hypothesis is the idea that business cycles

    in emerging market economies have become moreindependent from business cycles in advanced economies

    in recent years. Decoupling essentially amounts to astructural break in the degree of business cycle

    interdependence between the two groups of economies

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    For long, the US was the engine of the ride, fuellinggrowth in the rest of the world by offering up its giganticexport market

    The domestic economy of India is now robust enough tosustain itself through internal demand, and export-dependency is pass

    In other words, India has decoupled or delinked itself

    from the American engine.

    This implied that India would be able to eschew the impactofan economic down-turn in the developed world

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    Economic growth is picking up in india, which seems toprovide a new frontier for the world economy

    Trade among the new players intensified, suggestingstrong complementarity between them

    Also, the strength of our rural economy, that iscompletely disconnected from the developed world is a

    cause for decoupling Indias much smaller export sector that is relatively less

    reliant to commodities from the us

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    Thefinancial systemin India is in a veryrobustposition

    Savings rateis high householddebtis extremelylow fiscalconsolidation seems tobe wellunder way withthegovernment

    willingtotakekeyreformistdecisions. Fundingcosts forthehugeinvestments requiredforinfrastructure

    development willremainlow duetothedeflationary scarein Westerneconomies which willkeyrates low for a prolongedperiodoftime.

    As suchbothequity anddebtfunding shouldbeeasily available.

    Consumptiongrowthin India willbe strong withthenearly 10%expansionin PercapitaGDP peryearoverthenextdecade.

    Thus bothinvestment andconsumption willdriveeconomicgrowth.

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    In the 1990s, private consumption accounted for 67% of the GDP,while the share of exports was 9%. In 2008-09, the share ofprivate consumption had gone down to 59%, while that ofexports increased to 24.5% of the GDP.

    every one per cent decline in the world GDP growth leads toaround 3.71 per cent decline in Indian exports

    business cycle synchronization (in terms of GDP) of the Indianeconomy with U.S. has increased over time, in particular

    during recent periods (Q1 of 2006-Q2 of 2009)

    For every one per cent decline in the world GDP, Indiansoftware exports were down by 4 per cent

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    The share of manufactured exports has risen from 27.1% in1990-91 to 52.2% in 2000-01 and further to 72.3% in 2008-09.This significant export-orientation of manufacturing has also

    exposed the sector to external demand shocks

    The services export to GDP ratio is relatively lower, although it,too, has risen from 3.2% in 1990-91 to 15.1% in 2008-09

    In 2008-09, exports plus imports of goods and services formed

    at least half of the GDP. Same for gross capital inflows andoutflows.

    the share of foreign direct investment has increased ininvestment (7-8% of domestic capital formation in 2007 and2008)

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    COUNTR

    Y2005-

    06Growth %

    2006-07

    Growth %

    2007-08

    Growth %

    2008-09

    Growth %

    2009-10

    Growth %

    USA 17,353.06

    26.06 18,863.

    47

    8.70 20,731.3

    4

    9.90 21,149.5

    3

    2.02 19,535.4

    9

    -7.63

    TotalExports

    103,090.53

    23.41 126,414.05

    22.62 163,132.18

    29.05 185,295.36

    13.59 178,751.43

    -3.53

    Figures are given in million US $

    Source : Ministry ofCommerce & Industry, India

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    COUNTR

    Y2005-

    06Growth %

    2006-07

    Growth %

    2007-08

    Growth %

    2008-09

    Growth %

    2009-10

    Growth %

    USA 9,454.74 35.04 11,738.

    24

    24.15 21,067.2

    4

    79.48

    5

    18,561.

    42

    -11.89 16,973.6

    8

    -8.55

    TotalImports 149,165.7333.76 185,7

    35.2424.52 251,65

    4.0135.49 303,696

    .3120.68 288,37

    2.88-5.05

    Figures are given in million US $

    Source : Ministry ofCommerce & Industry, India

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    COUNTRY 2005-06Share %

    2006-07Share %

    2007-08Share %

    2008-09Share %

    2009-10Share %

    EXPORTS 16.83 14.9220 12.7083 11.4140 10.9289

    IMPORTS 6.3384 6.3199 8.3715 6.1118 5.8860

    Source : Ministry ofCommerce & Industry, India

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    Emerging Markets are shownbythegreenline,the USA bytheblueline, andnon-US developed stockmarkets by

    theorangeline

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    Thefinancial andcommercialinterdependencybetweenIndia and US was evident

    Eventhoughhavingnodirectexposureto sub-primeassets,itknocked-onindirecteffects as largecapitaloutflows weretriggeredbyinternationalinvestors

    Enterprises facedtighteningofliquidityintheirdomesticmarket as well as constraints intheir access toexternal

    financing

    Thedropin US demandledto anendtoexportdrivengrowth anddisruptioninintra-Asiantrade, stillhighlydependentonextra-regionalmarkets

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