India could face export, capital flow risks: FM

Written by Reuters | Milan, January 27: | Updated: Jan 27 2008, 22:36pm hrs
India is not likely to be hit by a slowdown among developed economies but should that happen it could risk less competitive exports and higher capital flows, Finance Minister P Chidambaram was quoted as saying on Sunday.

Slowing of the US economy has worried investors and policy makers, and concerns have also surfaced that the US downturn was spreading to the 15-nation euro zone.

"Our economy is driven by investments and by internal consumption, then by exports. We will adopt some fiscal measure but the crisis should not hit us," Chidambaram said in an interview with Italian newspaper Il Sole 24 Ore.

"As long as it does not go from one market to another: from subprime to insurance, from currencies to bonds. If it were like that, it could be a problem. But I think the crisis will be stopped in time."

He said one possible risk was exports being affected.

"If the dollar weakens and the rupee appreciates, exports will be less competitive; maybe capital flows will increase and we will have to keep inflation under control," he said while attending the World Economic Forum in Davos Switzerland.

"There will be also less consumption in America and less Indian exports."

The deputy chairman of the Planning Commission said this month India's annual economic growth rate could be lowered by up to half a percentage point if there was a global slowdown.

The Prime Minister's economic panel has forecast 8.9 per cent growth for 2007/08, and this will moderate to 8.5 per cent next year.

The Indian economy, one of the world's fastest growing after China, has grown at an average 8.6 per cent in the past four years.

"We grow by 8-9 per cent a year. There is no reason that sooner or later democratic India will not reach Chinese levels," Chidambaram said.