India may face export, funds flow risks

Malan, Jan 27 | Updated: Jan 28 2008, 05:39am hrs
India is not likely to be hit by a slowdown in developed economies but should that happen, it could risk less competitive exports and higher capital flows, finance minister Palaniappan 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. 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 Indias annual economic growth rate could be lowered by up to half a percentage point if there was a global slowdown. The Prime Ministers economic panel has forecast 8.9% growth for 2007/08, and this will moderate to 8.5% next year.

The Indian economy, one of the worlds fastest growing after China, has grown at an average 8.6% in the past four years. We grow by 8-9% a year.

There is no reason that sooner or later democratic India will not reach Chinese levels, Chidambaram said.