US crisis may hit but also benefit India, says FICCI

August 8th, 2011 - 6:47 pm ICT by IANS  

New Delhi, Aug 8 (IANS) India will be impacted in the short term because of the US sovereign debt crisis, but it will also benefit from the economic turmoil as softening crude prices will bring down inflation, prompting the Reserve Bank of India (RBI) not to hike rates, a leading industry lobby said Monday.

“One positive fallout of the rating downgrade, we feel, could be the Indian market perception that a possible decline in crude prices may signal a pause in RBI rate hikes, buoying investor sentiments,” the Federation of Indian Chambers of Commerce and Industry (FICCI) said in a statement.

“Additionally, the spreads between a US sovereign and Indian sovereign paper of comparable duration may decline, thus acting as an enabler to foreign institutional investors inflows into the country. This may have a sobering impact on the current account deficit, even though this may not be exactly desirable.”

Global stock markets continued to fall Monday after top credit rating agency Standard and Poor’s downgraded the US sovereign debt rating last Friday and cautioned of a further downgrade if the fiscal position of the country did not improve.

As far as the impact of the crisis on the Indian economy, FICCI said some short-term impact would be seen in terms of market uncertainties.

“An uncertain global environment could, however, depress India’s exposure to global markets (exports of goods and services, more than a quarter of India’s GDP) and knock off percentage points from India’s GDP growth,” the industry lobby said while outlining some of the risks.

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