The sun never sets on Dubai World — the banner on the Dubai World website. Why India should care?
Stock markets around the world cracked as the epicentre of the world’s latest financial earthquake, Dubai, sent tremors of uncertainty. The worst afflicted were emerging markets — Hong Kong and South Korea were down almost 5 per cent, Taiwan 3 per cent and Australia and China 2 per cent.
The two big exceptions: Dubai, which was on its weekly off, and the US, which celebrated Thanksgiving.
The fury left India — with its perceivably stronger economic growth expectations, lower exposure to global finance and little speculative real estate activity — relatively less scarred. The Sensex, after following the Asian herd down the cliff by 645 points, recovered to close 223 points or 1.3 per cent lower.
A day after Dubai World — the conglomerate that spearheaded the emirate’s breakneck growth — announced a proposal to delay paying back loans worth $59 billion (Rs 276,000 crore), investors read it as a sign of yet another implosion after Iceland and Ireland.
This is almost three-fourths of the country’s total $80 billion (Rs 374,000 crore) debt.
“The government is spearheading the restructuring of this commercial operation in full knowledge of how markets would react,” Shaikh Ahmad Bin Saeed Al Maktoum, chairman of the Dubai government’s supreme fiscal committee, said.
While India’s stock markets remained relatively less affected, the medium-term impact — if Dubai World’s proposal is rejected — would be a crash of the country’s real estate, leading to job losses for Indians there.
A million Indians — a third of Dubai’s population — work there. Most are employed in the speculator-led boom in real estate and construction that according to Realty-Network Association began in 2001, following a rise in public spending on infrastructure and housing.
Of the $52 billion (Rs 243,000 crore) of inward remittances Indians working abroad send their families in India, 10-12 per cent is estimated to originate in Dubai, according to research firm CLSA.
Most of these go to Kerala, Maharashtra, Gujarat and Punjab, according to a senior official in a large public sector bank.
Indian policymakers were circumspect. “I don’t think some development in real estate in Dubai will have an impact on the Indian economy,” Commerce Minister Anand Sharma said.
“We shouldn’t react to instant news. One lesson we learnt from the (global financial) crisis is that we must study developments and measure the extent of the problem and hence, study the impact on India,” RBI Governor D. Subbarao said.