Void created by the faltering fortunes of America spells opportunity for India to step up its efforts on global arena
Slowing investment, declining productivity, and rising debt could signal the end of US economic exceptionalism. The implications of this shift are profound, raising questions about whether other nations, including India, could step into the void left by a faltering American economy
The world watches with unease as the United States — the driving force of the global economy — faces an uncertain future. For decades, its policies have shaped markets from Wall Street to Mumbai, setting the pace for global finance. But now, doubts are mounting. Is the world’s most powerful economy on the verge of an irreversible decline? Are we witnessing the first cracks in the foundation of US economic supremacy, or is this merely another cyclical downturn?
These risks, however, spell an opportunity for India. With US companies seeking alternatives to China amid trade tensions, India has a chance to position itself as a preferred destination for manufacturing. If India can improve its infrastructure, ease regulatory bottlenecks, and offer a competitive business environment, it could attract a significant share of companies looking to diversify their supply chains.
As for the US, there are chances of it going into a recession. US Treasury Secretary Scott Bessent is credited with the view that there are “no guarantees” there will not be a recession but there could be an adjustment. In an interview with NBC, he said that he was putting in robust policies that would be durable, saying the country needs to be weaned off what he called massive government spending.
US stock markets have reacted sharply amid mounting uncertainties arising from President Donald Trump’s frequently shifting policies, including tariff threats against the biggest US trading partners
A recent report from the State Bank of India (SBI) Research corroborates Bessent’s view. The bank warns that the recent boom in the US economy may not be sustainable. It suggests that much of the post-pandemic recovery was driven by temporary policy measures rather than fundamental economic strength. Slowing investment, declining productivity, and rising debt could signal the end of US economic exceptionalism. The implications of this shift are profound, raising questions about whether other nations, including India, could step into the void left by a faltering American economy.
The US economic landscape presents a paradox — signs of resilience stand in contrast with deep-rooted vulnerabilities. The national debt has soared past $34 trillion, raising fears about fiscal sustainability. As interest payments continue to grow, they threaten to divert funds from essential public investments, ultimately constraining economic expansion. Inflation, though moderating from its 2022 peak, still exceeds the Federal Reserve’s 2 per cent target, forcing the Fed to keep interest rates high. This makes borrowing costlier for businesses and consumers, potentially stifling economic activity.
The commercial real estate sector is showing clear signs of distress. Office spaces in major US cities remain underutilised as remote work reshapes corporate real estate needs. Mortgage defaults are rising, and mid-sized banks are struggling, evoking memories of past financial crises. Geopolitical tensions further complicate matters. The US’s involvement in global conflicts, coupled with its ongoing trade disputes with China, threatens economic stability. The stock market, despite experiencing a surge in tech stocks, remains unpredictable, with volatility underscoring investor uncertainty about the future.
Despite these structural concerns, the US economy is not without strengths. The job market continues to show resilience, with unemployment hovering around 3.9 per cent. Wages are rising, and consumer spending remains robust despite higher interest rates. In the fourth quarter of 2023, the US economy expanded at an annualised rate of 3.2 per cent, exceeding expectations. This growth is fuelled by the country’s leadership in artificial intelligence and semiconductor industries, which are driving new productivity gains. Additionally, America’s energy independence has insulated it from global oil shocks, making it less vulnerable to external supply disruptions.
For India, the trajectory of the US economy carries significant implications. One of the most immediate concerns is the impact on capital flows. When uncertainty looms over the American economy, global investors tend to become more risk-averse. This often results in capital outflows from emerging markets like India, leading to a depreciation of the rupee and increased volatility in Indian stock markets. The IT sector, a key pillar of India’s economy, is particularly sensitive to US economic fluctuations. Many of India’s largest IT firms derive a significant portion of their revenue from American clients. A slowdown in the US could lead to reduced demand for Indian tech services, impacting earnings and employment. The pharmaceutical and textile industries, both of which rely heavily on US markets, would also feel the strain.
