Worried over the Greek debt crisis, the Government is proactively taking measures to allay fears of capital outflows from India. Greece's financial crisis intensified with Prime Minister Alexis Tsipras announcing capital controls and shutdown of banks at least for a week.
While Finance Secretary Rajiv Mehrishi on Monday assured that the Greek situation has no direct impact on India he said that there could be an outflow of capital from India due to firming up of interest rates in Europe.
“The crisis in Greece does not have any effect directly on India, but interest rates may firm up in Europe. In case of firming up of interest rates in Europe, there can be outflow of capital from India,” Mehrishi told reporters here.
The Government is in touch with the central bank which will take necessary steps to deal with the issue. “Obviously we are in touch with the RBI but they will do what they have to do,” he added.
Terming the situation as dynamic and evolving, Mehrishi pointed out that the crisis may have an indirect impact on India by way of its outcome on the European currency Euro. “To the extent it affects the Euro, there might be some indirect impact on India. If yields on Euro bonds go up, then it might impact inflows and outflows from India,” he said.
Greece shut down its banking system, ordering lenders to stay closed for six days starting from Monday to avoid a run on the country’s banks. The step, a fateful climax to five years of debt crisis, puts Greece closer than it ever has been to an exit from the Euro zone.
Meanwhile, the uncertainty in Greece pulled down the BSE benchmark index Sensex by over 600 points in early
trading but it recovered in the afternoon. Keeping the unusual movement of the market in mind, Mehrishi further said nobody can predict how the situation will evolve. Asked if any Indian company has exposure in Greece, he said: “I don’t know.”
On Government securities, (G-Sec) he said: “If yields on G-Sec go on in the US, it might impact inflows and outflows in India. We really don’t know how they (foreign investors) will relocate their portfolios.”
There have been fears of the cash-strapped European nation missing its debt repayment deadline of June 30. The situation may 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.
Early on Monday, Greece imposed capital controls and closed banks until at least July 6 after Prime Minister Alexis Tsipras decided to call a July 5 referendum on a proposed bailout package.
According to Chief Economic Adviser Arvind Subramanian, India is responding to the Greek crisis in line with other global economies. “So far, there is no cause of worry on Greece development,” he said.
Commenting on the impact of the Greek debt crisis on India, Commerce Secretary Rajeev Kher said it will not have much of an impact on India’s exports.
“India does not have large exposure to Greece as far as trade is concerned. But if European Union is hit, it could have a negative impact on India’s trade,” he said.
However, Mehrishi said India’s exports will not be impacted. Industry chamber Assocham said the Indian economy is not really centric to Greece directly but if European Union is impacted due to the crisis, then India could be affected.
Europe is India’s largest trading partner with $129 billion of merchandise engagement in 2014-15. Of this the European Union bloc accounted for $99 billion with UK, Germany, France, Italy as leading partners. “With over $355 billion foreign exchange reserves and the country promising to grow at the fastest rate in the world, India can withstand any pressure from the Greek crisis,” Assocham said.
“However, what is worrying is that the overall situation with regard to India’s merchandise exports does not look promising this year and the troubles in Europe could only deteriorate the prospects,” Chamber’s Secretary General DS Rawat said.