Greece crisis to have limited impact on India, says Rajan
ECONOMY ON THE MEND, WON’T BE AFFECTED MUCH BY GREEK CRISIS: RAJAN
CHENNAI: India will see limited impact of the Greece crisis as it has little direct exposure to the European nation, Reserve Bank of India (RBI) governor Raghuram Rajan said on Thusday.
“Greece is an evolving situation. The direct exposure to Greece is very very limited for India, both financial and trade,” Rajan said after a meeting of the RBI board. “...the direct impact is limited. Our sense is, after the initial burst of volatility, which might be (if) developments turned adverse then investors will start differentiating.”
Blaming global factors for the sluggishness in exports, the RBI governor expressed optimism that other macroeconomic factors were encouraging.
On the indirect fallout of the Greek crisis, Rajan said there could be some impact on the exchange rate, depending on how the euro will react to any untoward developments in Greece, leading to a risk of subdued sentiment among global investors.
‘The buffers we have are quite reasonable, including our foreign exchange buffers... and I am fairly confident the next phase after initial volatility will be a reassessment, which will be in our favour,” he said.
Referring to his last week’s speech on Global Depression at the London Business School (LSB), which has been the subject of discussion lately, the governor said predicting a ‘Great Depression’ kind of situation by the media was an unwarranted extrapolation of the content of the speech made at LSB.
The global economy is in a recovery mode which is still weak, but the overall situation is “not anywhere” like the depression of 1930s, he added. “I re-emphasise that the global economy is in recovery. It not a strong recovery by any means... recovery is weak but not anywhere that looks like depression (of 1930s).”
The global economy, too, is on a recovery path, and foreign investors still continue to show interest in the India story, he said.
“I would say (the economy is) picking up. We see some signs of capital investment picking up. There is a continuing need, which the government is trying to address, of putting some of the stalled projects back on track,” the RBI governor said.
MEANWHILE, DEPUTY GOVERNOR R GANDHI SAID THAT RBI MAY SOON TEST WATERS FOR PLASTIC CURRENCY, STARTING WITH A 10 NOTE.
Stressing that accelerating growth will require more reforms and removal of bottlenecks that come in the way of implementation of mega projects, Rajan said: “Would we want to (grow) faster? Yes, obviously. But we have to work in the areas of bottlenecks and those where we need reforms to ensure that growth is strong and sustainable.”
Rajan also said the RBI is keeping a close watch on the monsoon.
Stating that the government and the central bank are in discussions over recapitalisation of state-owned banks, he said: “I should also mention that the government has been in discussion with us but also thinking of adding more capital to the banks and that will help because it will give them a buffer.
The central bank is also committed to steadily increasing how much government debt foreign investors can buy, but will proceed cautiously to avoid becoming too reliant on overseas capital. India would examine debt limits twice a year, he added.
The current limit of $25 billion for ownership of government bonds by foreign institutional investors (FIIs) is fully utilised, leading to calls for increasing it. The country has also set aside another $5 billion for long-term foreign investors.
Meanwhile, deputy governor R Gandhi said that RBI may soon test waters for plastic currency, starting with a 10 note.