Concerned that a breakdown in talks between Greece and its creditors may accelerate capital outflows from India, the government on Monday said it is monitoring the developments in Europe and that the central bank would take necessary action to deal with any eventuality.
“We are in touch with the RBI, but they will do what they have to do (to deal with the situation),” finance secretary Rajiv Mehrishi said, adding that no firm action plan has been worked out yet.
According to NSDL data, foreign portfolio investors withdrew a net Rs 14,272 crore in May and Rs 294 crore so far in June, on concerns ranging from the pace of economic recovery in India to the rising uncertainties in the global economy.
Worries over Greece sparked a selloff in emerging markets on Monday. In India, the benchmark S&P BSE Sensex index fell 600 points in the intra-day trading, before it recovered to close 166.69 points down at 27,645. The benchmark 10-year bond yield hit its highest since May 22.
“This a dynamic and evolving situation. There is no firm plan that should be assessed and acted upon,” Mehrishi said, adding that nobody could predict what the exact situation would be.
Fears are mounting that the cash-strapped European nation might miss its IMF debt repayment deadline of Tuesday. The situation might prompt Greece’s European partners to shut the door on extending a credit lifeline after the country’s surprise move to hold a referendum on bailout terms.
Last week, RBI governor Raghuram Rajan said India’s economy would be able to withstand any impact from the crisis in Greece, partly due to its foreign exchange reserves, which reached a record high of $355.46 billion as of June 19.
On Monday, Mehrishi said the fallout from Greece would not have a direct impact on India, but that flows would be a potential concern. “ If yields on euro bonds go up, then it might impact inflows and outflows from India,” he said.
Foreign fund inflows/outflows might get impacted if the yields on US government securities firm up. “We really don’t know how they (foreign investors) will relocate their portfolio,” he said.
Mehrishi said he did not know if any Indian company has an exposure in Greece.