The global financial crisis will have an indirect effect on the Indian
economy as it will lead to liquidity tightening and will firm up of
the interest rates; affect the inflow of FDI
and export of goods and services to an extent. But said these will not
have much effect on the growth, as they can be addressed by tweaking
the government policies. Chief economic advisor Arvind Virmani said
that the financial crisis will have a minimal direct impact on Indian
economy and it will grow at the projected rate of around 8% in 2008-09
and 9% in 2009-10. Goldman Sachs also felt in the same manner. In a
report, it said, "We believe the credit crisis, which reversed
the tidal wave of cheap foreign capital over the past few years, will
have less of an impact on the economy's fundamentals.''
If the inflation is brought down to single digit, the government and
the RBI can take measures to ensure that liquidity crisis does not affect
economy. Virmani said that India's financial system remained intact
even during the present crisis. This, he said would give confidence
to the foreign investors, including the non-resident Indians to invest
in India. Goldman Sachs pointed out India's external sector is holding
well and various indicators suggest condition is under control. The
financial sector, the report said, remained sound, mortgage is a fraction
of total credit and exposure to inflated real estate is small.
The main reason behind the optimism is correction in the commodity
prices in the international market, because of the slowdown in the global
economy. The crude oil prices have already corrected to around $ 100
per barrel from over $ 140 per barrel few weeks back. This will help
bring down the inflation in the country. Virmani said that by March
2009, inflation will be brought down to single digit from over 12% at
present.
