While the world awaits the referendum in Greece and sees how the latest in the series of Greek dramas play out, Indian analysts weigh in on the situation and how it will affect (if at all) India. Here are a few good insights on why India can weather the Greek storm better than the rest of the world.
Mr. Bimal Jalan, former Reserve Bank of India (RBI) governor has the view that India would not be greatly affected by Greece as India is not a very high trade dependent country. According to Jalan, if the Greek crisis deepens, the GDP growth could be impacted by “0.2 per cent or something”. Mr. Jalan still hopes that the European Central Bank (ECB) would be able to step in and mitigate the crisis across Europe as the ECB currently is in a massive USD $1.1 trillion stimulus program.
Unlike the US and the rest of Europe, India does not have large exposure or direct trade ties to Greece. However, as Commerce of Secretary Rajeev Kher said some exports from India could feel the pain if the European Union is impacted by the Greece crisis.
The well-known global brokerage Nomura also weighs in on the situation and after much research and analysis concludes that compared to the 2011-12 European crisis, the rest of the Eurozone (barring Greece) is in a much stronger economic position this time round. A Bloomberg business article (based on Markit Economics report) further stated that the EU economy business index has reached a 4-year high as at June 2015**. Greece comprises of an estimated 2% of Eurozone GDP with its relatively small GDP of USD $250 bn.
In addition, Nomura said that Greece owes approximately 242.8 bn Euros (estimated USD $271 bn)* with Germany being the largest creditor in the Eurozone with 57.23 bn Euros, followed by France’s 42.98 bn, Italy with 37.76 bn and Spain's 25.1 bn. Euros as per a Reuters calculation based on official data.
The fallout would directly hit the Eurozone and the Euro currency strongly with smaller impacts on countries like India which remain on the periphery. Nomura remains bullish on the Indian rupee as a currency taking into consideration stronger economic data and fundamentals when compared to other emerging market countries.
RBI Governor Raghuram Rajan also holds the view that the Indian economy would be able to withstand the Greek crisis due to the fact that the country’s foreign reserves are higher than they have seen in a decade reaching a record of USD $355.5 bn (RBI data as of June 19, 2015)
Analysts generally agree on the fact that the Indian markets have had lower selloffs when compared to larger markets and has exhibited greater resilience to the Greek drama. Analysts at BNP Paribas Financial Services stated that the recent selloff in Chinese stock markets could also trigger some safe haven buying in Indian equities as India has less exposure than China to the Greece crisis.
Of course, it remains to be seen whether Greece leaves the Eurozone and if so, what the damages could amount to and the aftershocks that would be felt worldwide for some time to come.
*Source :Reuters: June 28 2015 http://www.reuters.com/article/2015/06/28/us-eurozone-greece-debt-factbox-idUSKCN0P80XW20150628
**Source: Bloomberg Business: June 23 2015 http://www.bloomberg.com/news/articles/2015-06-23/euro-economy-picks-up-as-business-index-reaches-four-year-high
References: Article dated 2nd July 2015 Bolla Alekhya - http://www.merinews.com/article/indian-economists-say-greece-crisis-not-to-impact-the-country/15907568.shtml