7/1/2015

Print:GreececrisisisnotamajorworrynowbutitremindsIndiastoryshouldbedomesticdriven

GreececrisisisnotamajorworrynowbutitremindsIndiastory
shouldbedomesticdriven
byJun30,2015
#Economicgrowth#exports#greekdebtcrisis#MakeInIndia#RaghuramRajan#Rupee
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Mosteconomistsexpectthatthereisn'tanyimmediateconcernforIndiaonaccountofcurrent
developmentsinGreece,wherethatcountryisonthevergeofdefaultingtoglobalcreditors,butwarn
contagionofthecrisistorestoftheEuropeanregioncouldeventuallyforceadefensiveplayon
policymakersinemergingeconomies.
Tobesure,comparedwithpreviouscrisisperiods,Indiaismuchbetterpositionedtofaceanyglobal
unrest.Thecountryhasforeignexchangereservesof$355billion(comparedwith$252billionin2008
09period),relativelystablecurrencyandimprovedfundamentals.EconomistssuchasCrisil'sDKJoshi
saywhatiscriticalisunevenglobalrecoveryandGreeceinparticularshouldactasaremindertothe
NDAgovernmentthatIndia'seconomicrecoveryshouldlargelydependondomestic,notexternal,
drivers.

]
Reuters
Greeceisn'tamajorworryatthisstage,butasourceofvolatility.Iftheglobaldemandfurthertakesa
majorhitonaccountofthis,Indianexportscanfurtherslowdown.Thebetterwayofhandlingthis
situationisnottodelaythepublicinvestmentspendingpushandbuildastrong,domesticdrivenstory,
Joshisaid.
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Print:GreececrisisisnotamajorworrynowbutitremindsIndiastoryshouldbedomesticdriven

(Meanwhile,financesecretaryRajivMehrishihassaidthefinancialcrisisinGreecemayhaveanindirect
impactonIndiaandthegovernmentisintouchwiththeRBItodealwiththesituation,Reutersreported.)
Indiahasalreadytakenahitontheexportfront.InMay,thecountry'sexportscontractedforthesixth
monthinarow,whentheyplunged20.19percentto$22.34billion.Thefallhasbeenmainlydueto
globalslowdownandafallincrudeoilprices.PossiblecontagionofGreececrisistoothermarkets,can
worsenthescenario.TheFederationofIndianExportsOrganisations,anindustrybodyofexporters,has
alreadywarnedoffurtherexportslowdownlookingatthecurrentorderbookposition.
SuchascenariocouldalsoleadtoreallocationofresourcestoemergingmarketsfromEuropeanregion,
whichwouldmeancountrieslikeIndiawouldwitnesslargescalecapitalinflowsimpactingtheexchange
rate,saidMadanSabnabvis,chiefeconomistatCare.TheRupeehasalreadybeenhighlyvolatilethis
year.Sincethebeginningofthisyear,therupeehaslost1.32percentbuthasgained7.12percentfromits
alltimelowof68.80on28August2013.
Sofarthisyear,foreigninstitutionalinvestorshavebought$12.82billionfromlocalequitymarkets.On
Monday,therupeeopenedat63.74againstthedollar,down10paisefromFriday'sclose,andiscurrently
tradingat63.90.ThecurrencyhaslargelytradedsteadythisyearbuttheRBIgovernorhascautionedthat
itstillfacesthedangeroffallingsharplyduetoexternalfactors.
Also,possiblespreadingofthecrisisinGreecetoGermanorotherEuropeanbankscouldupsettheRBI's
assessmentsoninflation.Inthe2Junemonetarypolicy,theRBIhassaidthatitiskeepingaclosewatch
ontheglobalmarkets.Volatilityinglobalbondmarketshasincreasedwithanumberoffactorsatplay:
unwindingofEuropeanassetsbyinvestorsduetotheGreekcrisisrapidlychangingexpectationsaround
theFed'sforwardguidancesharpmovementsincrudepricesandmarketcorrectionsduetochangesin
risktolerance,theRBIhadsaid.
Infact,theRBIhasbeenguidingthegovernmentthatIndianeedstopinitshopesondomesticdemand
forgrowthrecovery,ratherthananexportdrivengrowth.IntheJunepolicytoo,theRBIhasspokeabout
thisinthecontextoffallingexports.Netexportsare,therefore,unlikelytocontributeasmuchtogrowth
goingforwardastheydidinthepastfinancialyear.Consequentlygrowthwilldependmoreona
strengtheningofdomesticfinaldemand,RBIsaid.
Inthepast,RBIgovernor,RaghuramRajanhasattractedcriticismonquestioningthepremisesofNDA
government'sMakeinIndiacampaign,whichisbasedonexportledmodel.Rajansaidthedriveshould
focusontappingthedomesticdemandstrengthinsteadofhopingforaChinalikeexportledmodelina
slowinganduncertainworld.
Thecountryneedstolookto"regionalanddomesticdemandforourgrowthtomakeinIndiaprimarily
forIndia",Rajansaid,addingifexternaldemandgrowthislikelytobemuted,wehavetoproduceforthe
internalmarket.Thismeanswehavetoworkoncreatingthestrongestsustainableunifiedmarketwe
can,whichrequiresareductioninthetransactionscostsofbuyingandsellingthroughoutthecountry.
Inshort,thoughGreeceisn'tadangertoIndia,thecrisistherecansignificantlygeneratepessimism
amongglobalinvestorsandIndiashouldguarditselfbystrengtheningthedomesticfundamentals.
AccordingtoCrisil'sJoshi,supportinginvestorsentimentsinapessimisticglobalscenarioiskeyfor
Indiatocontinuewithitsrevivalstory.
TheshortmessageisthatthegovernmentneedstopushthekeyreformslandbillandGSTandkeep
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Print:GreececrisisisnotamajorworrynowbutitremindsIndiastoryshouldbedomesticdriven

spendingtorevivetheeconomicactivities.Therearen'tanysignificantinvestmentpickupseenyet(in
thedomesticmarket)'.
Tobesure,therearesomepositivesignalsemergingfromrecentmacrodata.Economistsnotethatthe
11.1percentgrowthincapitalgoodsanindicatorofcorporateinvestmentactivityinAprilcompared
with8.7percentinthepreviousmonthisencouraging.Ifthegovernmentbeginsitspromisedpublic
investmentpushinkeysectors,theearlysignsofrevivalseenintheindustrialactivitiescantakefirm
hold,despitewhathappensglobally.

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