Greece’s debt crisis will have limited impact on India: Rajan

“Greece is an evolving situation. The direct exposure to Greece is <g data-gr-id="39">very very</g> limited for India, both financial and trade,” Rajan said after the Reserve Bank’s board meeting here.

“...the direct impact is limited. Our sense is, after the initial burst of volatility, which might be (if) developments turned adverse then investors will start differentiating,” he said. Investors will see that India story actually continues to be a good one, he said.

On the indirect <g data-gr-id="41">fall out</g> of the Greek crisis, Rajan said there could be some impact on exchange rate depending on how euro will react to any untoward developments in Greece leading to a risk of sentiment amongst global investors.

India not only has good macro policies in place, but growth prospects are quite healthy relative to 

<g data-gr-id="84">rest</g> of the world. “Plus, the buffers we have are quite reasonable, including our foreign exchange buffers...and I am fairly confident the next phase after initial volatility will be a reassessment which will be in our favour,” he said. Moreover, Rajan said, that <g data-gr-id="68">global</g> economy is in a recovery mode which is still weak, but the overall situation is “not anywhere” like the depression of <g data-gr-id="67">1930s</g>. 

“I re-emphasise that the global economy is in recovery. It not a strong recovery by any means...recovery is weak but not anywhere that looks like depression (of <g data-gr-id="47">1930s</g>),” he said when asked about his views on the world economy and its challenges.

Referring to his last week’s speech, the Governor said predicting ‘great depression’ kind of situation by media was an unwarranted extrapolation of the content of the speech made at London Business School. “I gave the same speech four times before and somehow the word that came out... The first report on it was reasonable summary, even though it was close door nobody was supposed to report it, it was reasonable summary of what I said.

“Then there was <g data-gr-id="56">summary</g> of the summary and then there was <g data-gr-id="57">summary</g> of the summary of the summary. In this game of Chinese whisper at the end of it I was predicting great depression again,” he said after the Reserve Bank board meeting here. Rajan said monetary policy across the world, especially the unconventional monetary policies of different kinds, is getting to the point that it may have the primary <g data-gr-id="55">affect</g> on currency, rather than having its impact on energising interest rate sensitive sectors of a country. 

“If that is the effect, in the net form it starts resembling some of the comparative devaluation sort of the policies that we had in <g data-gr-id="53">30s</g> which I worried about. If a large currency area depreciates vis a vis India then our exports find it more difficult because rupee then becomes overvalued,” he said, explaining the complexities of the present global situation. There is a pressure on all countries including on India, he added.

“Commentators (are saying) why are you letting the rupee become strong...we should not succumb to these policies focusing of only on exchange rate which then becomes detrimental because everybody cannot depreciate against everybody else that was the context in which I made the statement,” he said. He said the Indian currency is fairly valued. “I will not say the rupee is overvalued. I think <g data-gr-id="58">its</g> fairly valued,” he said.