Global credit ratings agency Standard & Poor’s has said that a prolonged and widespread debt crisis in Europe could have a substantial negative impact on the Indian economy.
“If the solution of the Greece crisis takes longer than anticipated or if the confidence crisis in Europe becomes more widespread, there could be a more substantial negative impact to India,” S&P Director (Sovereign & International Public Finance Ratings) Takahira Ogawa told PTI.
However, Mr. Ogawa pointed out that the short-term impact of the crisis on the Indian economy would likely be indirect and “limited to the impact of a generally weak global stock market on India’s markets”.
The worsening Greek debt turmoil has raised concerns about the contagion spreading to other European countries, especially Portugal and Spain, which are facing huge fiscal deficits.
Despite euro zone countries and the International Monetary Fund (IMF) pledging a 110 billion euro bailout package for Greece, world markets are still worried about the viability of the proposed rescue effort.
According to Mr. Ogawa, if the debt crisis spreads to other nations in Europe and their banking systems, European entities could start repatriating funds from Indian stock markets.
“This would negatively impact the Indian stock market and lead to lower foreign currency reserves. In the process, refinancing by Indian borrowers from international markets would be adversely affected,” Mr. Ogawa noted.
Pointing out that the Indian economy is getting more connected to global economies, Mr. Ogawa said that in recent years, some Indian conglomerates initiated or increased their stakes in European companies.
“As such, there could be an adverse impact on the Indian economy through a decline of exports of goods and services to Europe and through the reduction of revenues or loss incurred from European-related operations of these companies,” he added.
Regarding the overall impact on India, Mr. Ogawa said the country could see more of a severe macro-economic impact due to the turmoil.
“In our opinion, as we have seen when the global financial crisis hit the global economy in 2008-2009, the macro-economic impact could have a more severe effect on the Indian economy than the financial impact by repatriation of foreign funds,” Mr. Ogawa noted.
World markets continue to wobble on fears about the Greece debt crisis, which could hamper the fragile global economic recovery.
