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House of Representatives rejects bailout plan

business Updated: Oct 01, 2008 13:10 IST
Gaurav Choudhury

It’s now beginning to hit home. And as the economic crisis in the US gets from bad to worse, the ripples that would be felt here will only get stronger — no matter how insulated or ‘decoupled’ India’s economy might be.

Late on Monday, the US House rejected the historic $700 billion bailout of Wall Street. This was despite legislative leaders’ appeals that the Bill was needed to save the US economy from a catastrophe.

The legislation was rejected by a 228-205 final vote, after more than three hours of debate.

The Dow immediately plunged as investors watched the dramatic House vote on television, but recovered a bit after the stunning developments.

At home, if Monday’s stock market is any indication, the US bailout plan could have helped stabilise the global markets, but would have not done much to reverse the losses that are headed India’s way.

In tune with global markets, as the Sensex fell over 500 points during the day, the government put up a brave face. “We do not expect any dip beyond this level,” said Ashok Chawla, secretary (economic affairs).

A strong regulatory architecture would prevent the contagion from spreading to India, authorities say, but analysts and industry leaders aren’t convinced.

“We are not isolated from the US,” said Som Mittal, president of Nasscom, the trade body of the country’s software services industry. “In December, we will review our (IT industry’s growth) data in consultation with our members, consultants, industry experts.”

Exporters, whose earnings contribute about 15 per cent of the country’s national income, are anxious as demand for their goods shrink globally.

“Many buyers in the US have filed for bankruptcy and order cancellations with Indian exporters are rising every day,” said Ganesh Gupta, president, Federation of Indian Export Organisations. “This will affect our earnings severely.”

India exported $158 billion worth goods last year, slightly under a third of which headed to the US.

“Exports growth may be dampened, given the weak demand following the slowdown in global economy,” said Yashika Singh of Dun & Bradstreet India, a global consulting firm. Making matters worse, the rupee touched a two-year low of Rs 47.05 to a dollar on Monday.

“The increase in capital outflows might put further downward pressure on the depreciating rupee,” said Singh of Dun & Bradstreet. This, experts said, could push the inflation rate higher.