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Crisil Ratings said that a slowdown in advanced economies, especially the US and the Eurozone, is expected to weaken India’s footwear and leather products export business in 2023.
“Domestic labor-intensive sectors such as textiles, footwear and leather rely heavily on these two sectors, which are particularly sensitive to downturns in these economies,” it said in a report titled ‘The Slowdown Shadow’.
It said that since these regions are India’s two largest export destinations, a slowdown in their economies would reduce the demand for Indian exports.
Many economists and global institutions had previously forecast a global recession in 2023, as the effects of continued monetary policy tightening in major economies unfold.
A rise in interest rates generally reduces demand in the economy and thus helps manage inflation, but it also has the potential to trigger a slowdown in overall economic activity.
“Advanced economies are expected to bear the brunt as they aggressively tighten monetary strings in 2022,” Crisil said.
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Crisil said the forecast of a global recession is worrying as India’s growth cycle has become highly synchronized with advanced economies over the past few years.
“The most significant and direct impact of this will be reduction in demand for Indian goods abroad. The US and the European Union (EU) are the two largest destinations, accounting for 18% and 15.4%, respectively, of India’s merchandise exports in FY2022 .,” it added.
It also raised concerns about India’s textile exports. “It is noteworthy that labour-intensive categories such as leather articles, footwear and garments have the highest export dependence on these advanced economies,” the report said.