Straight from the Specialists
(Any opinions expressed here are those of the author and not of Thomson Reuters)
The United States is the largest economy with a share of more than 22 percent in the world GDP. Naturally, even small changes in its behaviour have a perceptible impact worldwide. To India, the United States counts for a lot, although possibly less than it does for China.
The Indian economy is linked with the U.S. economy through three major routes. First, the United States is a market for more than a fifth of India’s total exports. In 2012-13, our exports declined because the U.S. economy had slowed down. Since June, our exports have been growing steadily to coincide with its recovery. The sector which has and is most likely to benefit is information technology. The manufacturing industry could not share the export boom or step up growth. This is one reason why non-oil imports shrunk and consequently reduced the trade deficit and the current account deficit.
Second, there is a strong link with the United States through investment, both portfolio and direct. FII investment is extremely sensitive to U.S. economic trends and policies. When the Federal Reserve announced its intention to reduce quantitative easing (QE), the world bourses reacted adversely — the BSE more than most others. FIIs partly exited the Indian market with the result that in 2013, there was a net outflow. That put pressure on the rupee, which depreciated substantially against the dollar.