India is likely to witness a short term impact of Greece?s public finance crisis if it spreads to larger Euro Zone economies, said Planning Commission deputy chairman Montek Singh Ahluwalia. Expressing his faith in the strength of India?s economy the deputy chairman added that Asia?s third largest economy is in much better position than the Euro zone countries which are on the verge of sovereign default and hoped that the crisis will remain limited to small countries and will not spread worldwide.
Addressing a CUTS International function in the capital on Tuesday Montek Singh said, ?If it (Greece bailout package) succeeds in stabilising the global financial situation, that is beneficial for us. The crisis really is the crisis of sovereign debt in the industrialised countries….We are not in that situation…?
Latest official data said a 13.5% industrial output growth in March?its sixth month of double digit growth-has helped the economy to finish the 2009-10 fiscal with a spectacular 10.4% expansion in industrial production. Factory output was a modest 2.8% in the 2008-09 fiscal when the country went through the economic slowdown. The data raised expectations that industrial growth for the just completed 2009-10 fiscal was good enough for the estimated 7.2% GDP growth.?
Finance minister Pranab Mukherjee told FE that the problem of Greece was mainly on three counts-their fiscal deficit at 13% of GDP, debt-GDP ratio at 115% and the current account deficit 13.8%. ?No economy, however, powerful or strong it may appear to be, can sustain such deficit levels,? Mukherjee said, highlighting the need for India to follow its planned course of reducing fiscal deficit.
Monetary and fiscal policy makers have already expressed their confidence in India?s ability to withstand any contagion effect of the Greece crisis. Reserve Bank of India (RBI) deputy governor Subir Gokarn said last week that the Greek debt crisis could trigger short-term vulnerability in the Indian markets, though its long-term impact might not be severe.
Finance secretary Ashok Chawla took a more optimistic view about the impact of the crisis last week and said India is immune to the debt crisis in Greece, and it may actually help the country bag the ?safer haven for global capital? tag.
But independent economists expect the government to go for a more calibrated withdrawal of fiscal stimulus measures in the light of the crisis. A note by financial services firm Citi on Tuesday said central banks all over the world, including Reserve Bank of India, will delay the hike in rates in the light of the risks posed by the Greece crisis. ?We no longer expect an intra-policy meeting hike before the July policy review,? said Rohini Malkani of Citi group. She added that considering the global growth risks and the room for the Indian rupee to take some brunt of monetary tightening, the expected rate hikes next year would be lower.