What is Double Dip Recession and how it affects Indian Economy?

  • In the current circumstances, a definite answer to which way the Global Economy is headed is difficult to answer, but the chances of a recession have increased due to the development of a pessimistic outlook in the state of the US economy and the debt crisis in Europe.
  • Apart from this, Japan, the world’s third largest economy, has been badly hit by the tsunami’s after-effects, aggravating its pre-existing economic woes.

Status of Emerging Economies:

  • The emerging economies like China, India and Brazil have economies sizeable enough to matter on the global scale. These economies have been growing faster than the developed world but slower than they were till a few quarters ago.
  • Among them, the largest economy China depends on exports to the developed world for a large part of its growth. The same is applicable to India and Brazil too, but to a lesser extent. So, any crisis in the West which leads to lower consumption over there would have an adverse impact on other countries too.

What’s a double-dip recession?

  • Double-dip recession refers to a short-lived recovery of an economy from a recession, before it slips back into another recession.
  • In other words, if the GDP of an economy goes into the negative, after a brief period of showing positive growth, it is called Double Dip Recession.
  • It is also known as W Recession.
  • Please note that when the markets sense a double-dip recession around the corner, the stock exchanges show bearish sentiments.
  • Then the lower consumer spending would force producers to lower their selling prices and thus cut down on its production costs, which will lead to higher rate of unemployment in the economy.

What will be impacts of double dip recession on Indian Economy?

  • The lower consumer spending in developed countries would hit India’s exports. However, the outsourcing could increase because the firms in the developed countries would try to save costs.
  • Further, the global recession typically means a decline in commodity prices and hence an easing of inflationary pressures.
  • This would be particularly true of crude oil prices, however, despite of all the positive effects, the growth of india can dip to less than 7% also.