Download - Greece Crisis is Not a Major Worry....Firstpost

7/1/2015 Print:GreececrisisisnotamajorworrynowbutitremindsIndiastoryshouldbedomesticdriven

http://www.firstpost.com/printpage.php?idno=2317254&sr_no=0 1/3

GreececrisisisnotamajorworrynowbutitremindsIndiastoryshouldbedomesticdriven

byJun30,2015

#Economicgrowth#exports#greekdebtcrisis#MakeInIndia#RaghuramRajan#Rupee

EmailPrint

Share 0 Comments

Mosteconomistsexpectthatthereisn'tanyimmediateconcernforIndiaonaccountofcurrentdevelopmentsinGreece,wherethatcountryisonthevergeofdefaultingtoglobalcreditors,butwarncontagionofthecrisistorestoftheEuropeanregioncouldeventuallyforceadefensiveplayonpolicymakersinemergingeconomies.

Tobesure,comparedwithpreviouscrisisperiods,Indiaismuchbetterpositionedtofaceanyglobalunrest.Thecountryhasforeignexchangereservesof$355billion(comparedwith$252billionin200809period),relativelystablecurrencyandimprovedfundamentals.EconomistssuchasCrisil'sDKJoshisaywhatiscriticalisunevenglobalrecoveryandGreeceinparticularshouldactasaremindertotheNDAgovernmentthatIndia'seconomicrecoveryshouldlargelydependondomestic,notexternal,drivers.

] ReutersGreeceisn'tamajorworryatthisstage,butasourceofvolatility.Iftheglobaldemandfurthertakesamajorhitonaccountofthis,Indianexportscanfurtherslowdown.Thebetterwayofhandlingthissituationisnottodelaythepublicinvestmentspendingpushandbuildastrong,domesticdrivenstory,Joshisaid.

Share



(Meanwhile,financesecretaryRajivMehrishihassaidthefinancialcrisisinGreecemayhaveanindirectimpactonIndiaandthegovernmentisintouchwiththeRBItodealwiththesituation,Reutersreported.)

Indiahasalreadytakenahitontheexportfront.InMay,thecountry'sexportscontractedforthesixthmonthinarow,whentheyplunged20.19percentto$22.34billion.Thefallhasbeenmainlyduetoglobalslowdownandafallincrudeoilprices.PossiblecontagionofGreececrisistoothermarkets,canworsenthescenario.TheFederationofIndianExportsOrganisations,anindustrybodyofexporters,hasalreadywarnedoffurtherexportslowdownlookingatthecurrentorderbookposition.

SuchascenariocouldalsoleadtoreallocationofresourcestoemergingmarketsfromEuropeanregion,whichwouldmeancountrieslikeIndiawouldwitnesslargescalecapitalinflowsimpactingtheexchangerate,saidMadanSabnabvis,chiefeconomistatCare.TheRupeehasalreadybeenhighlyvolatilethisyear.Sincethebeginningofthisyear,therupeehaslost1.32percentbuthasgained7.12percentfromitsalltimelowof68.80on28August2013.

Sofarthisyear,foreigninstitutionalinvestorshavebought$12.82billionfromlocalequitymarkets.OnMonday,therupeeopenedat63.74againstthedollar,down10paisefromFriday'sclose,andiscurrentlytradingat63.90.ThecurrencyhaslargelytradedsteadythisyearbuttheRBIgovernorhascautionedthatitstillfacesthedangeroffallingsharplyduetoexternalfactors.

Also,possiblespreadingofthecrisisinGreecetoGermanorotherEuropeanbankscouldupsettheRBI'sassessmentsoninflation.Inthe2Junemonetarypolicy,theRBIhassaidthatitiskeepingaclosewatchontheglobalmarkets.Volatilityinglobalbondmarketshasincreasedwithanumberoffactorsatplay:unwindingofEuropeanassetsbyinvestorsduetotheGreekcrisisrapidlychangingexpectationsaroundtheFed'sforwardguidancesharpmovementsincrudepricesandmarketcorrectionsduetochangesinrisktolerance,theRBIhadsaid.

Infact,theRBIhasbeenguidingthegovernmentthatIndianeedstopinitshopesondomesticdemandforgrowthrecovery,ratherthananexportdrivengrowth.IntheJunepolicytoo,theRBIhasspokeaboutthisinthecontextoffallingexports.Netexportsare,therefore,unlikelytocontributeasmuchtogrowthgoingforwardastheydidinthepastfinancialyear.Consequentlygrowthwilldependmoreonastrengtheningofdomesticfinaldemand,RBIsaid.

Inthepast,RBIgovernor,RaghuramRajanhasattractedcriticismonquestioningthepremisesofNDAgovernment'sMakeinIndiacampaign,whichisbasedonexportledmodel.RajansaidthedriveshouldfocusontappingthedomesticdemandstrengthinsteadofhopingforaChinalikeexportledmodelinaslowinganduncertainworld.

Thecountryneedstolookto"regionalanddomesticdemandforourgrowthtomakeinIndiaprimarilyforIndia",Rajansaid,addingifexternaldemandgrowthislikelytobemuted,wehavetoproducefortheinternalmarket.Thismeanswehavetoworkoncreatingthestrongestsustainableunifiedmarketwecan,whichrequiresareductioninthetransactionscostsofbuyingandsellingthroughoutthecountry.

Inshort,thoughGreeceisn'tadangertoIndia,thecrisistherecansignificantlygeneratepessimismamongglobalinvestorsandIndiashouldguarditselfbystrengtheningthedomesticfundamentals.AccordingtoCrisil'sJoshi,supportinginvestorsentimentsinapessimisticglobalscenarioiskeyforIndiatocontinuewithitsrevivalstory.

TheshortmessageisthatthegovernmentneedstopushthekeyreformslandbillandGSTandkeep



spendingtorevivetheeconomicactivities.Therearen'tanysignificantinvestmentpickupseenyet(inthedomesticmarket)'.

Tobesure,therearesomepositivesignalsemergingfromrecentmacrodata.Economistsnotethatthe11.1percentgrowthincapitalgoodsanindicatorofcorporateinvestmentactivityinAprilcomparedwith8.7percentinthepreviousmonthisencouraging.Ifthegovernmentbeginsitspromisedpublicinvestmentpushinkeysectors,theearlysignsofrevivalseenintheindustrialactivitiescantakefirmhold,despitewhathappensglobally.

Download - Greece Crisis is Not a Major Worry....Firstpost

Top Related