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India can't remain immune to euro debt crisis: FM

Finance Minister Pranab Mukherjee on Wednesday said that Indian markets cannot remain immune to eurozone debt problems and will feel the impact if the one trillion dollar bailout package by EU and IMF does not inspire confidence.

business Updated: May 12, 2010 20:10 IST

Finance Minister Pranab Mukherjee on Wednesday said that Indian markets cannot remain immune to eurozone debt problems and will feel the impact if the one trillion dollar bailout package by EU and IMF does not inspire confidence.

Meanwhile, the Reserve Bank said it is not changing its macro economic outlook on the basis of Greece debt crisis at this point of time.

Mukherjee attributed the problem of sovereign debt mess to the initial hiccups in the integration problem of Europe.

"If the bailout package does not inspire confidence in the market, being far away, having no physical connectivity, Indian market gets disturbed. This is a problem of the global linkage which cannot be avoided," he said to a query from the floor at CII annual session in New Delhi.

However, if the bailout package is attractive and injects confidence in the market, India's market moves up, he said.

India's benchmark index Sensex had declined 4.4 per cent or 789 points last week as world markets wobbled on concerns that Europe is facing prospects of a protracted debt crisis.

However on Monday, the Sensex, in sync with an upsurge in global stocks, bounced back 561 points after an USD 1 trillion package was unveiled by EU-IMF to help tide over the debt crisis in the euro zone.

The 27-nation European Union and the IMF on Sunday night reached a deal on a gigantic 750 billion-euro (USD 1 trillion) "crisis fund" to defend their common currency euro from attacks by speculators and to help bailout heavily indebted economies facing bankruptcy.

"The problem of European integration and particularly those who are yet to be fully integrated in all its aspects and more and more ... The new countries are providing in course of time some sort of uncertainty and with the global linkage, naturally it would have its impact," Mukherjee said.

However, once complete integration within eurozone is through, financial situation will improve, he added.

"What, I feel is the ultimately lies with the complete integration including all the major ingredients of the process of integration. As soon as takes place, financial situation will improve," the Finance Minister said.

At a separate function of economic thinktank ICRIER, RBI Deputy Governor Subir Gokarn said, "At this point of time, it does not seem necessary to change our growth forecast or overall macro economic outlook on the basis of what is happening in Greece."

As such, developments in Greece will not have any significant impact on RBI's policy considerations at this point of time, he added.