As Recession Fear Looms, Here's Where You Should Spend Your Money This Winter

News of a looming recession in the world's largest economy has left some Indians worried

The Centre has dispelled rumors of a recession. 

(Photo: The Quint)

On Saturday, 19 November, Amazon founder Jeff Bezos advised Americans to avoid splurging on new TVs, refrigerators, or cars during the coming holiday season because the US economy is likely to face a recession soon.

What has India said? India, however, has said we won't have to worry about a similar situation. According to former NITI Aayog Vice Chairman Rajiv Kumar India will still grow at 6-7 percent in the next fiscal year even as the economy may be affected by uncertain global condition .

So, should you listen to Bezos? Or should you listen to the Indian government and be investing in something specific right now? The Quint spoke to tax and wealth management advisor Gauri Chadha and author and adjunct professor at National Institute of Securities Markets (NISM), Monika Halan, to find out.

Is India headed for a recession?

Chadha told The Quint that there are high chances that the world will go into a recession soon.

Halan, however, disagrees that India is headed for a recession. "India is probably going to be the only country that will be undergoing a possible slowdown but not a recession. Technically, a recession is defined as two consecutive quarters of negative growth. India will be growing between 6 and 7 percent so we are in no way going to be affected by the global recession. We need to be careful. Its good to be prudent because the market is unpredictable, but not afraid."

What should Indians be spending on right now? Will essential commodities be affected?

Chadha said that money should be saved for rainy days and therefore one should spend only on essential items as of now and avoid luxury items. She pointed out that the prices of essential commodities are already on the rise and can further increase if there is a global recession.

Halan, however, feels the decision to spend on items like TVs, fridges, and electronics depend entirely on individual households.

Charting out a ratio of the average spending habit a household should follow, she explained," If a person is spending about half of their take-home salary on monthly living including buying things like TV, fridge, or any other item, and another 30 percent towards good loans and the remaining 20 percent towards savings then he/she can float above choppy waters

"It is a good idea not to overextend oneself on taking on pure discretionary large-ticket items," she adds.

What forms of savings/investments should you be opting for?

Chadha advises against investing in products that have a high lock-in period and instead opt for highly liquid options and keeping an emergency corpus in place for at least one year or more depending upon the nature of the individual's job.

Halan recommends having a portfolio approach in mind and continuing with Systematic Investments Plans (SIPs) and PF and PPFs and having an equity exposure through funds.

"The key is to not keep switching between different investment options and maintain consistency in one's portfolio. If you are investing in funds don't churn every year," she adds.

How will the middle class Indian's spending habits have to change in the coming weeks and months?

Chadha says people must avoid unnecessary expenditures on things like travel and ostentatious goods. Instead, the focus should be on trying to save as much as possible and park money in liquid assets.

Is it advisable to buy cars, homes right now?

Chadha advises against buying cars. "It is a big no as cars are a highly depreciating asset. Buying a house/home may still be reasonable as during recession one might get a good deal but he/she has to keep in mind that additional debt is not a good idea during recession. The loan amount should be kept minimum and if there is job uncertainty then one should not take any additional debt on their head," she adds.

E-commerce giant Amazon's founder Jeff Bezos recently asked Americans to cut back on spending on TVs and fridges. Does Bezos' statement have any significance in India?

Chadha says that Indians, too, should do what Bezos says. "If the recession hits other countries it will soon hit India as well. If there is a global recession India cannot escape it," she explains.

Is it a good time to take a home loan now?

Chadha specifies that only those who have a job that is secure should opt for a home loan. "Property is not a liquid asset so one must have their emergency funds in place before buying a property. Don’t put all your savings, money in property," she adds.