Greece crisis: Govt wary of capital outflows, toll on exports

The crisis likely to hit India's foreign exchange reserves

The government on Monday expressed apprehension that the crisis in Greece could trigger capital outflows from India due to a spike in interest rates in Europe, through euro bond yields. It said the crisis could also hit India's merchandise exports, already on the decline.

These could hit the country's foreign exchange reserves, depending upon the requirement of imports.

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Finance Secretary Rajiv Mehrishi told reporters the Greek crisis didn't directly have an effect on India but added interest rates might firm up in Europe, which could trigger outflow of capital from India. Terming the situation dynamic and evolving, he said, "To the extent that it affects the euro, there might be some indirect impact on India. If yields on euro bonds go up, it might impact inflows and outflows from India."

Nobody could predict how the situation would evolve, he said. "If yields on government securities go on in the US, it might impact inflows and outflows into India. We really don't know how they (foreign investors) will relocate their portfolios.

"Obviously, we (the ministry) are in touch with RBI (Reserve Bank of India) but they will do what they have to do," he said.

Chief Economic Advisor Arvind Subramanian, however, put on a brave face. "India is responding to the Greek crisis in line with other global economies. So far, there is no cause of worry on the Greece development."

Commerce Secretary Rajeev Kher said Greece would be an added pain to the already subdued merchandise exports. "Europe is already and impacting our exports. The euro has also depreciated in the third markets. The sentiment relating to Europe is already low. The Greece crisis will be an added pain for exporters," he said.

Anupam Shah, chairman, Engineering Export Promotion Council, said though there wasn't much engagement with Greece, contagion in the European Union and the entire European market would lead to a negative sentiment. "The capital controls in Greece could hit trade partners in the EU area and the impact could be felt worldwide. We could face indirect impact from the UK, Italy, Turkey and France, which in any case gave us negative growth in the first two months of the current financial year," he said. In May, India's merchandise exports had fallen for the sixth consecutive month.

In 2014-15, Greece accounted for only 0.11 per cent of India's exports. Exports to that country grew 7.67 per cent to $360.84 billion during the year compared with $335.14 billion in 2013-14, while exports to the European Union declined 4.39 per cent to $49.32 billion from $51.58 billion in 2013-14. The European Union accounted for 15.88 per cent of India's exports in 2014-15.

During the 15 years ended March this year, foreign direct investment (FDI) from Greece stood at only $6.39 million, against the overall FDI of $248 billion during this period.