We are keeping tab on euro crisis, says government

Aim is to prevent the contagion from spreading to home economy

“The finance ministry is keeping close watch on the situation. The Financial Stability and Development Council headed by Reserve Bank of India Governor is also making continuous assessment in the matter,” a finance ministry official said.

Experts say euro crisis is quickly becoming a global crisis, and if it goes out of control and leads to uncontrolled defaults, it would morph into a banking crisis that would have a very significant impact on all emerging markets.

Although Indian banks are not too exposed to European debt, the euro crisis has impacted the country through slowdown in flow of fund from foreign institutional investors, fall in stock markets, slowdown in industrial production, exports and a sharp decline in rupee, which has fallen 16 per cent since July this year.

Analysts say, the falling rupee and continued slow down in the US and Europe will continue to put pressure on the stock indices and dampen investors’ sentiments.

The rupee’s slump could also aggravate price situation in the country at the time when inflation has neared double-digit and the economic growth has hit a low of 7.7 per cent in the first quarter (April-June).

The falling rupee has already pushed up the cost of country’s imports, particularly oil, in the past as many months.India, undoubtedly, has a robust banking system and its calibrated approach to capital account convertibility has prevented undue surge of debt creating capital flows to a significant extent, financial experts opine the Euro debt contagion has spread so dramatically that the heat could be felt on the financial systems across the world.

The Euro Zone finance ministers are expected to meet in Brussels on Tuesday to try to finalise plans to leverage euro zone rescue fund and attract foreign investors to buy euro zone debt.