The crisis in Greece is expected to cause outflow of capital from equity markets in emerging countries, including India. Debt-related flows may also be lower as global financial market players are reluctant to invest in non-dollar regions.
Consequently, capital inflows to India may be on the lower side during the next 6 months, according to a Federation of Indian Chambers of Commerce and Industry survey.
As the liquidity condition in India expected to be a little tense for some time ahead, the surveyed economists say that the Reserve Bank of Indiamight not increase interest rates in a hurry and assure adequate liquidity in the system to retain the growth momentum.
These economists say that inflation is expected to fall in the 2nd half of the year because of the high base effect in the associated period last year and, if monsoon is good, as predicted, the inflationary pressure would reduce.
So RBIcan stop for some time, after looking at the liquidity condition.
The rupee is also anticipated to be under pressure in the near future due to the sell-off pressure from foreign institutional investors in the Indian markets.
The positive aspect is that the survey excludes the likelihood of any impact on India’s total exports if the crisis remains limited to Greece, as India’s exports to Greece constitute just 1-2% of its global exports.