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Greece-Eurozone crisis to have lesser impact on Indian economy than expected

Greece-Eurozone crisis to have lesser impact on Indian economy than expected

Author | Collin Furtado | Tuesday, Jul 07,2015 8:42 AM

Greece-Eurozone crisis to have lesser impact on Indian economy than expected

The citizens of Greece voted a ‘No’ on the referendum on whether the government should adopt austerity measures which the creditors seek in exchange for a bailout from its impending bankruptcy of its economy. As the news of this broke out early on Monday morning the stock market reacted as the BSE Sensex fell over 300 points and slipped below 27,000 mark, the Nifty too slipped below the 8,400. This was fears rose that this was a step towards Greece’s exit out of the Eurozone. However, the markets managed to recover towards the end of the day as the Sensex closed 116 points up at 28,208.76 and the Nifty gained by 37 points to increase to the 8,500 level.

However, though the stock markets managed to recover by the end of the day the issue of the Greece economic crisis is expected to have an effect on the Indian economy. The government on Monday also acknowledged this fact as the Finance Secretary Rajiv Mehrishi said that the Greece crisis might impact India indirectly. “If yields on bonds go up, it might impact inflows and outflows from India,” he said in a media report. In an earlier article on exchange4media we had seen the debt crisis of Greece having an indirect impact on the Indian economy. Most of it is expected to affect the inflow and outflow of funds from the country as it could impact the imports as well as exports to the country. The government is in talks with the Reserve Bank of India (RBI) in how to deal with the situation. India’s software and engineering industry may take a hit government officials have warned on Monday. This is as the European Union (EU) is the largest importer for such shipments from India and with the crisis effecting other nations in the EU they may chose to stop the imports. 

Apart from some senior economists expect to see some volatility in the rupee as it would depreciate due to the unstable global financial situation. The rupee during the early hours of trade weakened to 63.5600/57 per dollar compared to the previous close of 63.44/45 in the early hour of trading.

However, many economists expect the Greece economic crisis to smaller effect on the Indian economy as growth in India is largely driven by domestic demand which is expected to pick up. Domestic factors such as the monsoon season, quarterly earnings of companies and industries and policies passed or not passed during the monsoon session will have a larger impact on the Indian markets stated analysts in media reports. Some analysts even claimed that the markets had taken into account the Greek default and an expected ‘No’ in the referendum due to pre-polls analysis conducted. This explains why the markets in India did not crash on Monday. However, there is expected to be aftershocks as outflow of foreign funds could be seen as foreign investors could pull out funds in order to reduce their losses in case the markets fall as a result of the Eurozone crises.     

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