BOMBAY, 17 September — The events which have unfolded in the US have left the world shell shocked. And not just America but the entire world is affected by the barbaric act of terrorism. America is the richest economy of the world and if it catches a cold, naturally, the entire world will sneeze! For India, apart from the well being of the various Indians who might have been in the World Trade Center, there is tremendous concern over the way in which the already battered Indian economy would now move in the backdrop of these events.
Though the finance minister of India, Yashwant Sinha and also the International Monetary Fund have gone on record say there would not too much of an impact, there is little doubt that the tragic events in the US will have medium-term and even long-term fallout on the world economy and indeed, the Indian economy.
Sinha and the Petroleum Minister Ram Naik, state that the attack on the US will have no direct impact on the economy or the rupee. Both ministers assured that India has the cushion of term contracts for its oil purchases for at least two months and also pointed to the OPEC’s pledge to keep global prices stable.
But various analysts are of the opinion that the current US-led global slowdown may slip into an American-led worldwide recession. It is felt that companies and people will spend even less, and would instead want to save.
If this does indeed happen, then India’s exports, which are already down by 2 percent in first five months this year, would be further affected. Also, global investors could withdraw into a shell. Indian economy could thus be hit through all its linkages to the global one.
Another major concern for India is the surging price of oil. The day the New York’s Twin Towers came tumbling down, stock markets all over the world crashed in a mount of debris but it was only oil whose price shot through the roof. Reacting to the surge in global crude oil prices to over $30 a barrel in the aftermath of terrorist strikes, Naik said that the impact of the spurt in international prices would be known only in about 10 days. And for now, he has ruled out any price hike and decided to wait and watch the movement of international prices instead. The OPEC has assured that oil supplies would be maintained. This fact eased oil prices on Wednesday .
It is estimated that an average $1 change in price of the crude over a one-month period would affect the oil pool deficit by Rs.2.00 billion. A hike in petroleum prices after a couple of months could be effected if the global rates continue to rule high. A higher price would mean a higher forex outgo and a higher oil import bill.
As per the earlier projections, the oil import bill for this fiscal was expected to be in the region of $17.5 billion as compared to $16.5 billion in the last fiscal.
India is dependent on imports for over 70 percent of its oil needs and spent $15.5 billion on imports last year. High global oil prices could cause inflation in the economy, send government’s deficit soaring, strain the forex reserves and put pressure on the exchange rate of the rupee. There is a strong possibility that India’s attempt at boosting growth would be jeopardized.
India’s exports are likely to be affected, in particular ready made garments, and jewelry. Last fiscal, the country’s total exports to US amounted to $9.29 billion while imports were $2.8 billion.
The immediate ripples of the crashing Twin Towers was felt by all the stock markets world over. Japan’s Nikkei crashed to a 17 year low and India’s Bombay Stock Exchange breached downward the landmark 3,000-barrier.
United States has all along been a safe place where trillions of dollars could be invested, assuring better returns than those available in Europe and elsewhere. The terrorist attacks has had a devastating effect on confidence in the US economy, already affected by recession. And this hit on the confidence will be much more difficult to surmount.
Another effect of the attack on US has been that reinsurance premiums which till now had not taken into account possibility of more attacks, has also risen. The premium rise will not be restricted to large multi-storied complexes but all types of assets, varying from hulls, both aviation and marine, to large infrastructure projects. The US stock markets are expected to reopen on Monday and it is expected to be a wild day for all the markets in the world.