Greek crisis may not have major impact on India, says Subbarao

Source :Newswire18 / Thiruvananthapuram May 21, 2010, 0:17 IST



Reserve Bank of India Governor D Subbarao today said the debt crisis in Greece was unlikely to have a major impact on the overall sentiment in India.
But, warns that trade and services exports may be hit.
“We do not see much of an impact in the base case scenario on financial flows and overall sentiment,” Subbarao told reporters after RBI’s central board meet here.

“Using the base case scenario, there will be an impact on the trade side as Europe accounts for 27 per cent of India’s trade. More importantly, it might have an impact on services exports,” he said.

There could be some “knock-on impact” on India but it would be transient, he said. The governor said the central bank had been studying the developments in Greece for the last one month. “We have been discussing internally about what impact it will have on our economy.”

RBI Deputy Governor Subir Gokarn said the crisis in Greece could result in two absolutely diverse situations. The crisis in the European nation might trigger large outflows from India if foreign investors became risk averse, he said. Also, India could attract large inflows since it was a stable emerging economy with high growth potential, he added. “We are keeping a watch on both the situations. We have the capacity to manage the shocks.”

Led by Greece, Europe has been caught in a severe debt crisis that has hit the euro. On Wednesday, euro, the 16-nation common currency, tumbled to a four-year low against the greenback after it slid below the $1.2150 level.

Today, it recovered slightly and is trading at $1.2324. However, currency dealers speculate the euro may continue to remain under pressure until there are concrete measures from the European countries.

Earlier this month, the European Union and the International Monetary Fund put together a nearly $1 trillion package to rescue the continent from financial collapse.

On fears of a possible liquidity crunch arising from credit outgo to telecom companies which have bid for 3G spectrum for a mammoth over Rs 67,000 crore, Subbarao said there was no possibility of the general liquidity getting affected and banks could lend credit to telecom companies as part of this process.