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Global Financial crisis to affect Foreign Investment in India
Wednesday, September 24, 2008

The global financial crisis will have an indirect effect on the Indian economy as it will lead to liquidity tightening and will firm up of the interest rates; affect the inflow of FDI and export of goods and services to an extent. But said these will not have much effect on the growth, as they can be addressed by tweaking the government policies. Chief economic advisor Arvind Virmani said that the financial crisis will have a minimal direct impact on Indian economy and it will grow at the projected rate of around 8% in 2008-09 and 9% in 2009-10. Goldman Sachs also felt in the same manner. In a report, it said, "We believe the credit crisis, which reversed the tidal wave of cheap foreign capital over the past few years, will have less of an impact on the economy's fundamentals.''

If the inflation is brought down to single digit, the government and the RBI can take measures to ensure that liquidity crisis does not affect economy. Virmani said that India's financial system remained intact even during the present crisis. This, he said would give confidence to the foreign investors, including the non-resident Indians to invest in India. Goldman Sachs pointed out India's external sector is holding well and various indicators suggest condition is under control. The financial sector, the report said, remained sound, mortgage is a fraction of total credit and exposure to inflated real estate is small.

The main reason behind the optimism is correction in the commodity prices in the international market, because of the slowdown in the global economy. The crude oil prices have already corrected to around $ 100 per barrel from over $ 140 per barrel few weeks back. This will help bring down the inflation in the country. Virmani said that by March 2009, inflation will be brought down to single digit from over 12% at present.



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