Dear RK and all CiteHR members,
Are we moving towards another recession? The global economic developments after Standard & Poor's (S&P) downgraded the U.S. credit rating point towards the advent of a global economic meltdown. The leading rating agency S&P, for the first time, downgraded its long-term sovereign credit rating on the U.S. from 'AAA' to 'AA+' and kept a negative outlook. The debt ceiling could not prevent the S&P downgrading. The historical downgrading also worsened the world economy, which is already on the brink of a recession driven by the weakened U.S. financial recovery and the debt-ridden European economy.
While the debt crisis is likely to hit banking, manufacturing, real estate, and pharmaceutical sectors in the U.S., the crisis is said to cause only a minimal impact on India. It will presumably result in less capital flow to the Indian economy, and our capital markets may face volatility head. Being the 14th-largest creditor to the U.S., India has exposure to close to $41 billion in U.S. treasury bonds. The U.S. has an overall national debt of around $15 trillion, of which the country owes $4.5 trillion to foreign countries holding government debt securities. However, the recession fears have gripped the world economy, and here is a short peek into its impact across the globe.
Even our RBI has also invested a lot in US securities where the loss is being incurred. Let us now wait and watch the show.