For the last few years, decoupling has been a favourite term among Indian investors. Heady investors believed the Indian market had, finally, cut its umbilical cord from the US markets and stood poised to forever soar. So much so, corporate India too began to believe its high growth could be sustained quite independent of the state of the world economy, and government officials stoked the belief that the broader Indian economy was a self-sustaining engine that no longer needed to ride on the coattails of the developed world.

All those theories, and a lot of common sense, have gone out of the window in the last few weeks in the face of FUD — fear, uncertainty and doubt. And investors, corporate executives and government officials have loudly disavowed the notion of economic utopia. Now, the mood has swung sharply to the other side and borders on paranoia. If the stock market is any indicator, investors appear to be inextricably intertwined with the fortunes of the US and other world markets. It seems needless but that is the way of the market. Isn’t it irrational at all times?

The fact is, many of the things that apply to the US economy do not apply to ours and consequently, India will suffer far less than the US. A global recession surely will cause some pain to India, perhaps more pain to certain vulnerable but relatively small sectors, but nowhere near the kind of pain the middle-class American is expected to suffer. But investors refuse to take note of any of this and are relentlessly hammering down stocks, creating further panic.

Let me cite just three sharp differences that we should recognize and take comfort from.

1.    The worst pessimist doesn’t believe India will face recession, whereas the US is faced with a near-certain one. Recession, for those of you not familiar with its economic definition, is two consecutive quarters of negative growth in GDP — an improbable thing in most emerging markets including India.

India’s GDP will grow by at least 6% this year, even if the rest of the world suffers a recession. Planning Commission Deputy Chairman Montek Singh Ahluwalia and others believe growth could be even higher. In fact, the IMF projects a 7% growth. This is because broad swathes of the Indian economy are insulated from world markets, and domestic demand is sufficient to maintain fairly high levels of growth.

2.    Unemployment will not sharply rise, as is feared. But looking at the US scenario, many — too many, in my opinion, — needlessly fear the same in India. The recent round of layoffs by Jet Airways and those proposed by Air India have hardly helped. But there are at least two reasons why we have little to fear.

One, most sectors will be only moderately affected and are consequently unlikely to hand out pink slips. Even the software sector, among the hardest to be hit by the global financial crisis, will likely retrench only a few thousand employees (in a country of hundreds of millions of workers). Remember that the IT sector accounts for less than 5% of the national income.

The aviation sector is even smaller. Besides, its crisis is largely of its own making. Airlines should now have been in better position to succeed, what with the price of crude oil sharply falling to a 13-month low as the global crisis exacerbated. That they are not is a reflection of their flawed and over-ambitious expansion plans, and bruising price wars in recent years.

Two, corporate India accounts for only 15% of our national income.

3.    Finally, banks in India are unlikely to fail. They are tightly regulated and adequately capitalized, in sharp contrast to American banks. Even Indian subsidiaries of American and foreign banks face tight regulation in India and depositors’ money is seen as secure. Consequently, depositors have nothing to fear, unlike investors (especially those of ICICI Bank) who could lose a lot of money because of the sharp slide in the value of banks’ shares.

I think the paranoia being whipped up in India is by the class that is directly invested in the stock market and/or real estate. The average American investor has been hit by a double whammy — plunge in both the stock market and real estate. Many have seen their net worth erode by up to 50%. Only those who stuffed money in their mattresses have escaped.

But in India, it is the relatively affluent middle class and high net worth individuals who are feeling the pain. This is the class that invested heavily in the stock market and fueled the real estate boom by buying second and third homes, or luxury villas. Surely, this class has the capacity to withstand the recent losses. In these troubled times, I would rather be in India than anywhere else in the world.