On why, if the US sneezes

… India can catch a cold. The phrase that if US sneezes India will catch a cold is very popular in the Indian media these days. It’s very true in the present global economy where businesses are no longer isolated from each other or from other parts of the world. This being evident by the hit taken by ICICI Bank. Especially true in the case of our services sector where now it has become one of the major contributors to India’s GDP.

The Oracle of Omaha, Mr. Warren Buffet has spoken. He says the US with a $9.5 trillion economy is in recession, even though technically it may not be, since it has not recorded two straight quarters of negative growth. This has to be taken seriously coming from a man whose organization’s per share book value has compounded 21% annually and who recently overtook Bill Gates to become the richest man in the World.

US GDP growth in the last quarter (Oct ’07 – Dec ‘07) has risen by just 0.6% and the IMF forecasts US GDP to grow by 1.9% in 2008. China on the other hand is looking at cosmetic ways of cooling down GDP growth. One of the biggest trading partners of the US is China and while in 2007 US exported goods worth $65.2 billion it imported goods worth a staggering $321.5 billion from China. That accounts for 40% of the exports from China. China has recorded double-digit growth in exports in almost every major sector to the US. If US growth is indeed slow; trade from both the countries India and China with the US will slow down. China would not get affected much as it’s anyway looking to cool down it’s booming economy but if it decides and grabs this opportunity to provide more value than India to the US it’s a cause for worry. China can very well force its muscle to get a bigger pie and India better watch its step.

One of the star performing sectors for India is the services sector, read IT and IteS, which is a big chunk. Already the local players in China are giving a tough competition for Indian players who want to establish a presence in China. Not that the Chinese aren’t experts at fields other than the core sectors. China’s search engine giant Baidu is giving tough competition to even the Internet behemoth Google.

While the Chinese growth has largely been government led, Indian organizations will have to find their own feet and keep going without the government’s help while they are busy playing their bureaucratic games.

As the Chinese say - “May you live in interesting times”.