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Indian Economy Can Weather US Credit Downgrade, Says New Delhi


A stock broker watches the Bombay Stock Exchange (BSE) index on his trading terminal in Mumbai, India, Aug. 8, 2011.

A stock broker watches the Bombay Stock Exchange (BSE) index on his trading terminal in Mumbai, India, Aug. 8, 2011.

India says it is in a better position than many other nations to manage the challenge arising from the downgrading of the U.S. government’s credit worthiness.

Sounding a reassuring note, India’s top finance officials said Monday the United States' downgraded credit rating will have only a limited impact on Asia’s third largest economy.


(AP)

Finance Minister Pranab Mukherjee says the country's economic fundamentals are strong and can handle any uncertainties arising from the latest crisis. He expects more foreign investors, or FII’s, to come to India.

“There could be some impact on the capital and trade flows, but as India’s growth story is strong, we could see FII’s seeing India as an attractive investment destination, even if there is any temporary outflow," Mukherjee said. "In addition, we could rather see faster and greater FII inflow in view of the higher returns that global investors could get in India.”

Central Bank officials also moved to calm markets, which slid during the day, pointing out that the country’s economy remained resilient despite the 2008 financial crisis and continued to grow at around seven per cent.

To a large extent, this was because India is sustained by a large domestic market and is less dependent on exports than many Asian economies. During the global recession, purchases of homes, cars and other products by the country’s huge middle class slowed only marginally.

Finance Minister Mukherjee hopes the country’s huge pool of domestic consumers will once again keep the economy humming.

“We will also focus on encouraging greater domestic consumption and give impetus to the drivers of domestic growth," he said. "The government will fast track the implementation of pending reform.”

Officials in New Delhi are hoping the latest economic challenge will have a positive benefit in another important sector.

Oil prices are expected to fall, and this could help India, which is heavily dependent on oil imports, fight high inflation and lower its fiscal deficit. The government has been criticized for failing to control rising prices, which are hurting millions of poor people.

India’s bid to fight inflation has slowed the economy marginally, but growth still remains strong at around eight per cent.

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