Eurozone crisis won’t kill Indian economy: Montek

Despite the worsening situation in the eurozone, India is not vulnerable to sudden capital outflows, Planning Commission deputy chairman Montek Singh Ahluwalia told the media today, just ahead of the seventh G20 summit. He said India has enough foreign exchange reserves to see it through even a very severe shock.

In a worst case scenario where the entire $140 billion worth of financial investment in India from Europe is withdrawn, India would still have half of its foreign exchange reserves intact, he said.

Ahluwali argued that the perception of an Indian economic collapse following a Eurozone blowout was wrong, because it ''assumes that no one would want to lend to us in such a situation'', which is not true.

 He argued bankers who looked at the international system would look at even the lowered 6.5 per cent growth rate as impressive in comparison to the rest of the world. ''It is not clear to me that you would want to draw money from India in such circumstances.''

But he did admit that this time the crisis could be worse than in 2008 for two reasons. One was that unlike in 2008, no country had the fiscal room to come to the rescue of their domestic economies to prop up growth. He added that more than any crisis, it was the extreme nervousness of the financial markets that was the problem at present.

The other reason was that although the Greek economy is small, there is a fear of contagion amongst European banks in case the Greek economy collapses. These fears however may have receded somewhat, as the new government in Greece is committed to the euro and to greater austerity.