US economic problems & India

You are here: Home » Business » We are better prepared, says Govt We are better prepared, says Govt New Delhi, Aug 8, (DHNS and PTI): Admitting that US economic problems could have some impact on Indian economy, Finance Minister Pranab Mukherjee, on Monday, said that India’s fundamentals are strong and the government is ready to address any concern that may arise. “We would focus on encouraging greater domestic consumption and give impetus to the drivers of domestic growth,” Mukherjee told reporters while reacting to economic situation in US. Mukherjee’s confidence was reflected in a sharp bounceback of Indian shares on Monday, as the stock markets plunged by over 500 points before witnessing some recovery. The Finance Minister also said that the government will put some of the long stalled reforms measures in fast track to help stimulate local consumption. “India is better position than other nations to meet the challenge posed by the developments in the US and the euro zone”, he said adding that India could see faster and greater FII inflows unlike after 2008 meltdown, in view of the higher returns that global investors could get here. The recent developments in the US and the euro zone have injected certain uncertainty in global markets. Though there could be “some impact” on capital and trade flows “but as India’s growth story is strong we could see FIIs viewing India as an attractive investment destination even if there is any temporary outflow”, he said. The finance minister said softening of global commodity prices, especially oil, will help check inflationary pressures. Meanwhile, Chief Economic Advisor Kaushik basu termed the slump in the stock market as a “panic reaction”, affirming that the country’s growth story remains intact, with now policy intervention required. “Right now, we don’t need any special measures. Should the need arise, the government and the central bank are in a position to step in. But barring the immediate reaction to what is happening now, the India story remains robust,” Basu said. Though the downgrade of the US sovereign rating is a matter of concern, Basu said there was no need for alarm and people should not overreact to the development, adding that the American economy has been facing difficulties for the past many months and hence, the stock market has already factored in the troubles in the US. If there is a slowdown in the US economy, “which is possible”, he said Indian exports could suffer, as the US is one of the country’s largest trading partners, but the the impact would be short run. He further said there are signs of the tectonic plates of the global economy shifting toward the eastern part of the world. “In the next months and in the medium to long run, there will be global capital in search of safe haven. India can become the safe haven that a lot of global capital will be seeking,” Basu added. Basu said the S&P downgrade could lead to an increase in borrowing costs in the US and could impact its economic growth going forward. The crisis in the global economy following downgrading of US sovereign rating has a silver lining for the Indian economy, grappling with high inflation. As prices of global commodities, mainly crude oil, have started coming down, the pressure on inflation would ease, Basu added.India imports 75 per cent of its crude oil requirements and the volatility in its prices have been fuelling inflation, which was 9.44 per cent in June. Weakening of crude oil prices will help moderating the price rise. On Monday, The Deputy Chairman of the Planning Commission Montek Singh Ahluwalia mentioned that the Indian economy is mostly driven by domestic factors and markets here will stabilise in the short-run, despite the recent meltdown due to US downgrade. “The high growth of Indian economy is largely driven by internal factors. I feel the market will stabilise in the short-run. I don’t expect to see a big negative impact but we have to watch the situation,” Ahluwalia said. “The impact on India depends on what happens in the world. If there is financial instability, there will be some impact,” he added. Ahluwalia said that if there is financial instability globally, it will affect the Indian economy to some extent.