India has the ability to ride out even the worst sort of financial shock created by a Eurozone crisis, assured Planning Commission number two Montek Singh Ahluwalia. In a worst case scenario in which the roughly $ 140 billion worth of European financial investment in India was recalled back to Europe, he said, India would still have half of its foreign exchange reserves intact.
Ahluwali argued that the assumption of an Indian economic collapse following a Eurozone blowout “assumes that no one would want to lend to us in such a situation.” He argued bankers who looked at the international system would look at even the lowered 6.5% growth rate as impressive in comparison to the rest of the world. “Not clear to me that you would want to draw money from India in such circumstances.”
He admitted India’s economic slowdown was a consequence of both ‘’domestic constraints’’ and the sorry state of the global economy. “We re slowing down and this is not just because of the world situation,’’ he said.
Ahluwalia said he expected growth of 6.5 or 7% and dismissed the finance ministry’s forecast in the budget of 7.6% growth. He admitted that the “slowdown had been more than we had expected but that is also true of the world economy as a whole.’’
He admitted that New Delhi, which has seen its fiscal deficit balloon in recent times, had less “firepower’’ to handle a financial crisis. He said it could take another two years to get a reasonable growth rate again.