How does the Greece
crisis affect India?
I'll try to bring out the whole picture in this answer.
I'll try to bring out the whole picture in this answer.
- First things first, why is Greece facing a crisis?
Greece became the
epicenter of Europe’s debt crisis after Wall Street imploded in 2008. Greece
announced in October 2009 that it had been understating its deficit figures for
years, raising alarms about the soundness of Greek finances. So it all started with
a lie. And as a consequence, Greece was prevented from borrowing in the
financial markets (Broad term describing any marketplace where buyers and
sellers participate in the trade of assets such as equities, bonds, currencies
and derivatives). By 2010, it was veering toward bankruptcy, which threatened
to set off a new financial crisis. To avert calamity, the International
Monetary Fund, the European Central Bank and the European Commission (they are
collectively referred to as Troika) issued the first of two international
bailouts for Greece, which would eventually total more than 240 billion euros,
or about $264 billion at today’s exchange rates.
The bailouts came
with conditions. Lenders imposed harsh terms which required Greece to take
actions that could reduce the government deficits, overhaul its economy by
streamlining the government, end tax evasion and make it an easier place to do
business. The money was meant to revitalize the Greek economy but the money has
gone in repaying the debts, as a result of which the economy has shrunk by a
quarter in five years.
- How bad is the current situation?
It is
as bad as it can get. Greece needs to payback $1.7 billion, to the I.M.F. by
Tuesday midnight. If Greece misses the deadline it will default on its debt and
if it goes bankrupt or decides to leave the 19-nation
Eurozone, the
situation could create instability in the region and reverberate around the
globe (which is most likely to happen).
- How will India be affected?
The whole scenario
will have an indirect impact on India. Since India is not directly exposed to
Greece in terms of trade ties, it is less likely to affect India. However, if
the Eurozone is hit by the crisis then probably India will have to bear the consequences
as well.
- Exports: Europe is India's largest trading partner with USD 129 billion of merchandise engagement in 2014-15. India's merchandise exports has not been in prime health this year and the crisis in Europe will only deteriorate the prospects.
- Capital Movement: After Greece doesn't meet its deadline, the interest rates will rise all across Europe because the economic health of countries like Spain and Italy is also not very good (so financial institutions will not lend easily). All this will have an outcome on the Euro. And at the present moment even experts are unsure about how the foreign investors will relocate their portfolios. This will result in capital inflow and outflow in and out of India. While capital inflow is good as it brings money into the country, capital outflow is undesirable as assets move out of the country. But we'll have to wait and watch for now.
With
over USD 355 billion foreign exchange reserves and the country promising to
grow at the fastest rate in the world, India can withstand any pressure from
Greek crisis.
This was a statement
issued by ASSOCHAM (Associated Chambers of Commerce and Industry of India
is one of the apex trade associations of India).
India
is responding to the Greek crisis in line with other global economies. So far,
there is no cause of worry on Greece development
This is what the
Chief Economic Adviser Arvind Subramanian feels.
So if such stalwarts
are saying such optimistic things I don't think there is a need for us to
worry.
For the economic
jargon refer:http://www.investopedia.com/
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