We are living in uncertain times. One never knows when Lehman Brothers can trigger an economic Tsunami bringing the world to a state of recession, bordering depression; or a prosperous and flourishing Dubai can default to create financial uncertainty or Greece can create a crisis that threatens till-recently a strong currency like Euro and ignite the dreaded republic debt default. But only if we look into seeding and sprouting of these events in a little more objective manner, it would be noticed that there were ominous signs and such unfortunate developments were only waiting to happen.


What is even more blissful to our Motherland is that our first, second, third and fourth reactions to such development are dismissive one, which is "not going to impact" India. That is what the powers that be, always state; though with passage of time, when everyone else thinks that India will be impacted, that the realization dawns on our Government leaders. It will be recalled that when US Sub-Prime Rates had triggered the recession, right from our Hon'ble Prime Minister down to mandarins in North and South Blocks pooh-poohed the possibility of any impact on India. It was much later that everybody in his own wisdom realized that their assessment about the US triggered global downturn was not right and that it will make an impact on India, which it did.


Things are not very different this time too. Our Finance Secretary, Ashok Chawla is on record to say, "It (Greek debt crisis) will have minimal impact on country's export. As far as overall India economy is concerned, the impact will be very minimal. In fact, in the short run, the Greek debt crisis might help us in terms of India being regarded as a relatively safe place to park funds." However, Subir Gokarn, Deputy Governor, Reserve Bank of India, seems to disagree, adding, "There might some nervousness among investors worldwide which might provoke capital outflows from emerging markets in the short run; so there is a risk of short-term vulnerability of capital outflows." However, Chawla is sure that in the long run, the impact would be negligible as India has faced bigger crisis of larger volumes without letting its economy shrink beyond a point", while treating the current crisis of Europe to be a "temporary affair."


However, the latest assessment from the Government, in this case-Pranab Mukherjee, is closer to the realities than Chawla or even Gokarn. The Finance Minister has acknowledged that "The Greek debt crisis roiling markets worldwide may at most "influence" India, but will have limited "adverse impact" on the country. "However, he acknowledged that the present Greek debt crisis was not as lethal as 2008-09 crisis triggered by the US Sub-prime Crisis. And in any case, India had "very little direct exposure to European countries at the centre of the crisis with the country's banking system having no direct inks with them and exports to Greece, Spain, Portugal and Italy are only 4% of our total exports."


Significantly-and wisely, Mukherjee added, "That way, our exposure is not much. But the fact of the matter is even when the Sub-prime Crisis hit the US, we did not have any direct relation with it. But when it converted into a major financial crisis, capital outflows started, developmental support came down, FDI came down...exports starting sinking."


What Finance Minister has mildly referred to the impact of US Sub Prime crisis on India, needs to be delved more deeply. It must be acknowledged that the crisis spread its wings, far too beyond the US and traveled almost all over the world, once again reminding us that the world today is a global village and any pulsating part of the world cannot remain immune to the financial problems in another part of the world. Had Greece not been a part of European Union, it would have been a different story altogether. Any sovereign debt default in the present case would have had extremely seriously repercussions on Euro and the European Union.


Ground Realities


As soon as the news of imminent first-ever republic debt default by Greece emerged, it sent shock-waves across the world. When the Euro celebrated its 10th anniversary last year, it seemed to b a solid currency. Only a few eccentrics could speculate about whether it could face the possibility of its break up one day. In the past few weeks, Greece has changed all that. After initial hesitation, the European Union and International Monetary Fund came out, rather quickly, with 110 billion Euro bailout package for Greece. It did set off euphoria, which could see bailing Greece through the crisis. But it was short-lived for an incredible short period of just one day. It gave way to doubts whether the package would enable Greece to see it through. The package raised more questions that it answered, and like so many of the policy responses of Western governments in the past two years may well be too little, too late. The crisis in Greece is essentially fiscal, but its implications for Greece and the Euro zone countries may well go beyond the purely economic. The New York based investment bank, Morgan Stanley is among those saying that the possibility of a Euro collapse has to be considered. Next to the demise of the Euro, the implosion of Lehman Brothers Holdings would look like a fairly trivial event.