Monitoring Greek crisis; may hit India indirectly: Government

New Delhi, July 6 (IANS) The government on Monday said it was closely monitoring the Greek situation and euro market movement after the rejection of creditors’ austerity proposals in a referendum posed the possibility of Greece’s exit from the euro zone.

“We will have to see how the euro moves now. We are closely monitoring the Greek situation. There could be some reaction on the Fed (US Federal Reserve) rate hike,” Finance Secretary Rajiv Mehrishi said here.

“The Greece crisis might impact India indirectly,” he said.

Over 61 percent of Greeks voted “no” on Sunday, responding overwhelmingly to Prime Minister Alexis Tsipras’ calls to reject a proposal by the country’s creditors for more austerity in exchange for a financial bailout.

Mehrishi said last week that the fallout from Greece would not have a direct impact on India but capital flows would be a potential concern, even as the government was in touch with the Reserve Bank of India to deal with any untoward situation.

“If yields on euro bonds go up, it might impact inflows and outflows from India,” he said.

Indian industry feels that if a crisis developed for Europe due to Greece, India too could feel the tremors like the rest of the world.

“What is worrying is that the overall situation with regard to India’s merchandise exports does not look promising this year and the troubles in Europe could only deteriorate the prospects,” Associated Chambers of Commerce and Industry of India (Assocham) said in a statement here.

“There is a need for RBI and the finance ministry to keep a close eye on the muddy global situation and its possible effect on India’s capital flows and the currency movement,” the industry body added.

India’s merchandise exports continued to decline for the second month this fiscal, down by over 20 percent at $22.35 billion in May from $27.99 billion in the same month of the previous year, official data showed last month.

The Federation of Indian Export Organisations (FIEO) has warned that the continuing decline in exports would result in layoffs, besides putting pressure on the current account deficit (CAD).

FIEO president S.C. Ralhan agreed with RBI Governor Raghuram Rajan’s recent remarks that the central banks globally were at risk of slipping into the kind of beggar-thy-neighbour strategies, leading to the Great Depression of the 1930s again.

In a statement, he said that based on the current order booking position, he was apprehensive that the Indian exports might significantly decline in volume in the months ahead, resulting in job layoffs.

The strategy of “making a beggar out of neighbouring nations” normally involves increasing the demand for one’s exports by devaluing the nation’s currency so as to make the exports to other countries cheaper.

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