Eurozone crisis makes India vulnerable
The ongoing European debt crisis has made India more vulnerable as the country has exhausted most of its firepower in tackling the 2008 crisis and not much room for fiscal manoeuvrability is left to mitigate the more “challenging and difficult” second crisis that hit the nation within four years.
On his arrival at San Jose airport, 30 km away from this Mexican beach town, where the leaders representing 80 per cent of global GDP are meeting, Prime Minister Manmohan Singh said world economy was in deep trouble and hoped G20 would come up with constructive proposals to get the world out of it.
Hours later, Montek Singh Ahluwalia, deputy chairperson of the Planning Commission, who is the Indian Sherpa for G20 summit said: “India will be lucky to grow between 6.5 and 7 per cent. It is much below our long-term target. But the slowdown was more than what we thought.”
The two-day summit is meeting against the backdrop of a faltering global economy and a lingering Eurozone crisis that has engulfed several countries including India.
Later talking to reporters, Ahluwalia said while G20 did not have any silver bullet, the declaration at the end of the summit might reaffirm global support to back up European nations in the time of crisis and encourage them to continue with their reform agenda as “solution to the problem lies within Europe.”
Ahluwalia said it would take at least 2 years for India to come back to a reasonable growth rate as the government has less firepower and less fiscal space in 2012. The crisis had slowed down the growth rate.
In his departure statement, Prime Minister Manmohan Singh said the Eurozone crisis was of particular concern to India as Europe accounts for a significant share of the global economy and is India’s major trade and investment partner.
“India is looking at a global solution rather than insulating its economy and going back to pre-liberalisation growth figures. The answer lies in stabilising global economy and keeping the markets open. But there is no silver bullet from G20,” he said.
In an encouraging signal, the newly-elected Greece bailout party said it would like Greece to stay within Eurozone and continue with reforms. The much awaited election results that was being seen as the last chance for Greece to stay within Eurozone, came as a relief to battered Euro and became a rallying point in the markets since morning.
However, Ahluwalia said European slowdown is not the only problem impacting Indian economy as there are equally vital internal problems as well. Clearly, the indication was at the government’s inability to kick start reforms and policy paralysis.
Singh has a number of bilateral meetings scheduled in the next two days on the sidelines of G20.
But his meeting with German chancellor Angela Merkel assumes particular importance as it comes in the backdrop of increasing pressure on Germany to adopt a pro-reform economic agenda shunning the austerity approach. While there is no pre-specified agenda for the Singh-Merkel talk, the Eurozone crisis and possible solution will be a part of the discussion. Singh would also meet his counterparts from Mexico, Canada, UK, France and Russia.