in the next couple of years.
Chief economic advisor Arvind Virmani told 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.
The main reason behind the optimism is correction in the commodity prices in the international market,
because of the 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.
However, the financial crisis will have some indirect effect on the Indian economy as it will lead to liqudity
tightening. This will lead to firming up of the interest rates, affect the inflow of foreign direct investment and
export of goods and services to an extent. But, Virmani said these will not have much effect on the growth,
as they can be addressed by tweaking the government policies.
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 nonresident
Indians to invest in India.
Goldman Sachs pointed out India's external sector is holding well and various indicators suggest condition
is undercontrol. The financial sector, the report said, remained sound, mortgage are a fraction of total credit
and exposure to inflated real estate is small.
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