The Greece debt crisis has affected the world markets, including India that dropped by more than 600 points in early trade on Monday, but later recovered. Despite the ongoing crisis, the stock markets opened in green on Tuesday and rebounded by over 135 points.
Greece may default on an International Monetary Fund debt repayment due on Tuesday. According to a Reuters report, it owes its official lenders 242.8 billion euros ($271 billion). That figure includes loans made under two bailouts from European governments and the IMF since 2010 — worth a nominal 220 billion euros so far, of which some has been repaid — as well as Greek government bonds held by the European Central Bank and national central banks in the euro zone.
On Monday, Finance Secretary Rajiv 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.
He also said no firm action plan has been worked out yet.
We look at few pointers that suggest India may not be affected by the Greek drama:
Exposure to Greece
India’s direct exposure to greece is very limited and unless there is a contagion impact to other European countries, shouldn’t be much of a worry. Possibility of outflows could be there if bond yields rise in Europe. But overall macro economic parameters decent for India.
Foreign exchange reserves reached a record high of $355.46 billion as of June 19. Last week, RBI governor Raghuram Rajan said India’s economy would be able to withstand any impact from the crisis in Greece beacuse of stronger foreign exchange reserves.
Foreign debt as a percentage of GDP is under control in India.
Ever since the Greek crisis first unfolded India has made the most progress in keeping the domestic economy steady. According to Sameer Goel of Deutsche Bank, India has taken the biggest strides on fundamental macroeconomic indicators, particularly by way of stabilising external imbalances and accumulation of foreign exchange reserves, so the RBI’s capability to defend the rupee against big capital outflows is much better now.
Investment in India
India needs to safeguard itself from the Greece crisis by guarding its financial institutions and limiting exposure to countries where the impact of the crisis could be felt more. India needs to expedite the approvals on the big-time investments and projects so that the money may continue to flow in the country.
There have been substantial foreign inflows — well over $60 billion — into the Indian debt and equities market over the last 18 months. Indian policy has been very prudent on foreign inflows.
(With inputs from Agencies)