How a global slowdown/recession will impact you

Ashraf Engineer


Hello and welcome to All Indians Matter. I am Ashraf Engineer.

From me and everyone at IdeaBrew Studios, happy new year! We wish you the best year ever, one in which all your wishes are fulfilled.

I wanted the first monologue of this year to look back on 2022 and what everything that happened on the economic front implies for the year ahead.

2022 began with great hope. We were emerging from the COVID-19 slump and it felt that India would bounce back strongly over the course of the year. But that was not to be. The Ukraine conflict fundamentally altered the global outlook. Fuel and food prices soared, supply chains were disrupted. Employment, that most critical of economic objectives, got no traction. Central banks across the world began raising interest rates in order to curb inflation but that also meant slowing growth. In fact, many economists are predicting a mild recession in the US and some other parts of the globe this year and this would, naturally, affect India too. So, what does the year hold for you?


The Centre for Economics and Business Research, or CEBR, didn’t sugar-coat its predictions. It said plainly that the world is headed for a recession this year. Several key economies would contract, it said, on the back of interest rates raised to pull back inflation.

Its report said: “The battle against inflation is not won yet. We expect central bankers to stick to their guns in 2023 despite the economic costs. The cost of bringing inflation down to more comfortable levels is a poorer growth outlook for a number of years to come.”

Note what it said: “…poorer growth outlook for a number of years to come.”

The CEBR’s findings are gloomier than those of the International Monetary Fund, which warned that more than a third of the world economy would contract and there is a 25% chance of global GDP growing by less than 2%. This, too, the IMF says, counts as a global recession.

Think about this: 2022 witnessed the highest level of global inflation in 50 years, the most aggressive monetary tightening in nearly 40 years and the strongest dollar in 20 years.

India’s natural rate of growth, no thanks to those handling the economy, will ensure against it slipping into a recession but it will certainly grow slower than it did in 2022. Even former Reserve Bank of India Governor Raghuram Rajan has warned of this.

Don’t forget, the lingering effect of the COVID-19 pandemic is still with us. We haven’t completely grown out of it yet.

On December 7, 2022, RBI Governor Shaktikanta Das hiked the repo rate by 35 basis points to 6.25%. The repo is the rate at which the RBI lends to other banks. The hike was along expected lines but with it came a whopper: Das announced a lowering of the GDP growth projection for FY23 to 6.8% from the 7% forecast in September. Even that 7% forecast was a step down from the 7.2% the RBI had projected in April. So, it’s been a steady reduction of the projection. The RBI is clearly seeing choppy waters ahead.

That’s not surprising because India has more of an uphill battle than most people understand. Before the pandemic hit, most developed and emerging economies had seen an extended run of high growth and low inflation. India, however, entered the pandemic after eight successive quarters of declining growth and rising inflation. So, don’t believe anyone who says that our struggles were caused purely by COVID or the Ukraine invasion.

In its ‘State of the Economy’ update in December, the RBI took note of “a darkening global outlook” and emerging market economies being “more vulnerable”.

By the way, you must have heard a lot about the US Federal Reserve hiking interest rates. Here’s what it means on the ground:

  • If there is a Fed-induced recession to tackle inflation, India will have to deal with a strong dollar and high commodity prices — a double blow. Why? Because we would have to pay more rupees to buy dollars and more dollars to buy the commodities we need
  • Because rates are high, the US debt market offers higher returns. This means that foreign investors would prefer to park their money there rather than in India. They might even sell Indian shares and invest that money in the US debt market
  • US growth would slow. The US is the engine of the global economy, which means that growth everywhere would slow

What are the major fears for India?

First, 2023 could see more protectionism globally, which could affect India’s exports. And there seems to be great local support in these countries for protectionism.

In India, factory output, measured by the Index of Industrial Production, fell to a 26-month low in October – despite the festive season. This is one of the major reasons for the downward revision of growth projections.

Micro, small and medium enterprises, or MSMEs, continue to be under great stress – this underscores the widening gap between large companies and smaller ones. One in every six loans under the Emergency Credit Line Guarantee Scheme, which was part of the COVID relief package, turned bad in just 27 months with the defaults mainly in the lower band – that is, loans up to Rs 20 lakh. These are the loans taken by MSMEs. And it’s the MSMEs that employ the largest number of people and any stress on them would mean job losses and higher unemployment.

The other worry is that India is significantly dependent on imported energy, accounting for 4% of the GDP. Since the dollar is rising and the rupee falling, it means that we have to pay more for the same amount of oil or coal that we import.

Many people point to the rise in farm output, but rural wages contracted for the ninth consecutive month in September. This indicates that there is considerable stress in the rural economy. Not only has unemployment resulted in labour oversupply there, which depresses wages, the high inflation means rural India is consuming less too.

Generally speaking, in such situations, governments tend to raise capital expenditure, investing in infrastructure among other things, to push growth. This isn’t always great because it implies that government expenditure will further outstrip its income and result in larger deficits. This means the government would need to bridge the gap by borrowing more, which would result in interest rates rising even further. This puts credit even more out of reach of businesses and individuals that badly need it to stay afloat and continue to employ people.

So, is there any good news at all?

Yes. As an emerging economy, India will continue to grow – even though it will slow down considerably. We do have domestic drivers of demand and stock markets remain high at the moment. There has been some cooling of inflation, especially food inflation.

There is optimism about the problem of businesses having huge amounts of debt and banks dealing with historically high non-performing assets. The corporate debt-to-GDP ratio is at its lowest in nearly 15 years and banks’ bad loans have reduced somewhat.

There is significant investment expected in sectors such as renewable energy and electric vehicles.

Many multinationals have deployed a China-plus-one strategy, which means they are investing in manufacturing bases in at least one country other than China. So, India could see manufacturing investment in sectors such as textiles and footwear.

Bank credit seems to be rising too, though the RBI’s rate hikes may hit the brakes on that soon.

And tax collections are up – both, direct taxes and GST.

I want to end with what you can do to prepare for a tougher economic time.

  • First, take stock of your finances and financial priorities. You don’t know what’s around the corner, so figure out how much cash you have on hand, how much you can source if you need it quickly, what your living expenses are, how much debt you have and whether there are any major life events coming up – such as a wedding or retirement or planned surgery. This will help you understand what expenses you can cut down on and also what you will most likely spend over the course of the year. Cut down as much as you can on non-essential spending without turning yourself into a recluse. These are usually lifestyle expenses such as nights out and clothes you don’t need.
  • Second, pay off as much debt as you can – especially the expensive kind like credit card debt. Make sure you have enough money for rent and transport. Ditch the car; use public transport instead.
  • Third, consider whether your job is secure enough. If not, do you need to look for one that is? The time to make the switch is before a low-growth cycle hits because jobs are scarce after that. Refresh your professional networks and update your resume. Upskill yourself through relevant courses, if needed. That’s a good investment to make.
  • Fourth, have an emergency fund and bolster it as much as you can. If things go south on the job or business front, you’ll need every penny. Again, cut out the non-essential spending.
  • Essentially, what I’m saying is that you need to stay on top of the financial situation. The proactive steps you take now will help you tide over the tough times. Take professional investment help, if needed.

As I said earlier, India is likely to get through 2023 better than most but that doesn’t mean there will be no turbulence. In a country that has little or no social security or unemployment assistance, you’re essentially left to fend for yourself.

I don’t mean to be a prophet of doom and I certainly don’t think anyone should panic or that we’re on the edge of a precipice, about to fall off. But I do think we should be aware of the economic reality and not get swept away by the claims made by the government. Best to take a rational, clear-eyed view of what’s happening. And, most of all, be prepared.

Thank you all for listening. Please visit for more columns and audio podcasts. You can follow me on Twitter at @AshrafEngineer and @AllIndiansCount. Search for the All Indians Matter page on Facebook. On Instagram, the handle is @AllIndiansMatter. Email me at Catch you again soon.