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Industry fears US downgrade will hurt Indian exports

business Updated: Aug 06, 2011 18:48 IST

The US crisis, aggravated after the downgrading of its sovereign rating by S&P, could severely affect India on account of a dent in country's exports to the world's largest market, business chambers said on Saturday.

CII, FICCI, Assocham and FIEO expressed concerns over events in the US economy, one of the biggest markets for Indian merchandise and software exports.

The Country's second largest software exporter Infosys's CEO and MD Kris Gopalakrishnan said, "There are fears of another recession in the US and a debt crisis in Europe."

Putting up a brave face, he said, "I believe the industry will be able to withstand another downturn (after the 2008 crisis)."

Confederation of Indian Industry Director General Chandrajeet Banerjee said, "... we shall have to see how it plays out, we are likely to have a stronger rupee against the dollar, which is not good for our exports."

Assocham said, "Indian policymakers should keep a watch and analyse the impact of Standard and Poor's downgrading."

The Federation of Indian Exporters Organisations (FIEO) chief Ramu Deora said, "The downgrading will lead to further appreciation of the rupee against the American dollar which is already facing the heat, thereby blunting our competitive edge.

"The US government will have to increase taxes to bring in more people under the tax net to curtail its deficit which will further shrink their disposable incomes and may have an impact on India's exports to North America."

He added, "Our worst fear that exports and fourth quarter (economic growth) will be affected may come true."

Garments, handicrafts, leather, gems and jewellery would be the most affected sectors besides IT, according to Deora.

India's merchandise exports to the US in 2010-11 made up for 13% of its merchandise exports of USD 246 billion. Besides, 60% of the country's software exports of USD 59 bn during that period were destined to the US.

Ficci secretary general Rajiv Kumar said, "Problems in the US can cause major disruption in the world and would also affect India. Our exports would be affected if situation in the US deteriorates."

He said it would have an impact on the banking sector as well.

Indian exports since January have been registering high double-digit growth, but this may not be sustainable if the US falls into another recession and Eurozone problems persist.