The Greek crisis could trigger some capital outflows from India, Union Finance Secretary Rajiv Mehrishi said on Monday. He said that the situation was dynamic and evolving and the crisis could have an indirect impact on India by way of its outcome on the European currency euro.
India is monitoring developments after the breakdown in talks between Greece and its creditors, he said.
The Union Government is in touch with the Reserve Bank which will take necessary steps to deal with the issue, Mr. Mehrishi told reporters as the Bombay Stock Exchange’s Sensex lost over 500 points in early trade over the Greece issue. The Sensex later in the afternoon recovered 430 points from day’s low and closed 166 points down. “Obviously we are in touch with the RBI but they will do what they have to do….interest rates may firm up in Europe in which case there could be an outflow of capital from India.”
Mr. Mehrishi said nobody can predict how the situation will evolve.
“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. We really don't know how they (foreign investors) will relocate their portfolio,” he said.
Reserve Bank Governor Raghuram Rajan had said last week that India’s economy was expected to be able to withstand any impact from the crisis in Greece thanks in part to its foreign exchange reserves, which reached a record high of $355.46 billion as of June 19.
It is feared that cash-strapped Greece would miss the deadline of June 30 for repaying its debt leading to other European countries suspending the credit lifeline to it. The country has announced that it will hold a referendum on bailout terms on Wednesday.
