Grexit: ‘Adverse spill-over impact on India to be contained’

A Grexit will potentially trigger a global risk-off scenario primarily via the banking sector. For India, there is no direct banking sector exposure. However, India’s trade linkages with Greece are very small forming just 1.14% and 0.03% of India’s export and import basket respectively, says ASSOCHAM president

By Sai Nikesh D

A day after Greece’s voters rejected bailout proposals giving rise to likely possibility of ‘Grexit’ from Euro zone, the Government of India, on Monday, said it is closely monitoring the situation with a view that Grexit would have indirect impact on India.

While Finance Secretary Rajiv Mehrishi felt that there could be some reaction on the Fed rate hike, the Chief Economic Advisor Subramanian said the country is relatively well insulated from the Greece situation, but, ‘rupee might get affected to some extent due to flight of foreign investment’.

Rana Kapoor, president, Associated Chamber of Commerce and Industry (ASSOCHAM), India, said, “A Grexit will potentially trigger a global risk-off scenario primarily via the banking sector. For India, there is no direct banking sector exposure.”

He went on to say that India’s trade linkages with Greece are very small forming just 1.14% and 0.03% of India’s export and import basket respectively.

Nevertheless, in the short term, volatility in local markets could continue in line with risk-off sentiment amid absence of any major domestic cues.

However, ASSOCHAM believes that the adverse spill-over impact on India will be contained, he noted.

He went on to explain that ‘while most European economies have ring-fenced themselves to avert a full-blown contagion, reports continue to peg Euro zone exposure at EUR 250 bn to Greek banks, of which Germany’s exposure is EUR 75 bn and UK’s is to the tune of EUR 10 bn’.

“While Grexit is a possibility, it is likely to be destabilizing for Greece and hence should keep separatist tendencies at bay and the default by Greece to its international creditors will put it at par with ranks of delinquent countries such as Zimbabwe, Cuba and Somalia,” he noted.

With intra Euro zone inter linkages having increased significantly since the adoption of EUR, it is in the interest of all stakeholders to cooperate and preserve the core principle of Monetary Union, he added further.

According to the ASSOCHAM president, ‘special liquidity measures for Greece from European Central Bank (ECB), expanding the ongoing EUR 1.1 tn program for the Euro zone to ease liquidity and an emergency bond buying scheme called Outright Monetary Transactions (OMT)’ would have been the possible solutions towards retaining Greece in the Monetary Union, if the country had shown popular resolve to accept austerity measures to remain in Euro zone on Sunday.

This was published in The Dollar Business on July 6, 2015

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