While admitting that an adverse effect was seen on the stock markets on Friday, Mukherjee said what insulated India was the limited exposure of the countrys banking to financial systems in Dubai. The full impact of the Dubai debt crisis is yet to be assessed, but there is no need to press the panic button, Mukherjee told reporters on the sidelines of a function here.
To draw his point, he pointed out that first of all, the amount is small, and secondly, the exposure of our banking systems to the Dubai financial systems is limited. The finance minister has also said the crisis would not have much impact on the countrys exports to the region.
The issue could, however, have a negative effect over the repatriation of foreign exchange and joblessness there, though the situation was manageable. I dont think it will have much of an effect on Indian workers there, he said. Indians comprise 42% of the population in Dubai.
Earlier, delivering the Haksar Memorial Lecture on Asian economy after the financial crisisAn overview, Mukherjee said green shoots of growth have started appearing in Asia. It is difficult to say that the crisis is firmly and surely behind us. The growth in developing countries in Asia, he pointed out, decelerated from 9.5% in 2007 to 6.1% in 2008, and was expected to decline further to 3.4% in 2009.
The finance minister observed that among the developing countries of Asia, in terms of the growth impact of the crisis, South Asian economies appear to have been the most resilient so far. Due to the recovery led by China, East Asia is expected to grow at 4.4% in 2009 and 7.1% in 2010. South Asia is expected to grow at 5.6% in 2009 and 6.4% in 2010, he added.
Speaking about India in particular, the FM said that monetary and fiscal stimulus played a key role in reviving the economy. He added for the year 2009-2010, the fiscal deficit is projected at 6.8% of the GDP. This level of fiscal expansion can only be a short-term response and is unsustainable on a long-term basis, the FM warned. For a durable exit from the crisis, policymakers will have to tread carefully and balance the risks of withdrawing policy support too early, which might cut short a nascent recovery, against the risks of leaving expansionary policies in place for too long, which could overheat the economy, he stated.
The high drivers of domestic growth in recent times, the FM said, had been domestic demand, demographic dividend, and democratic compulsions. Demographic dividend, he said, refers to Indias young population contributing to higher national income, savings and investment.
The sharp recovery of Asia, particularly India and China, also means beginning of a paradigm shift in global economic power towards Asia, with India and China at the centrestage. Though we were not a part of the problem, we certainly are going to be a part of the solution, Mukherjee said.
Regarding climate change, he said there should be a common and differential approach towards climate change depending on each country.