With a perilous Greek election due Sunday and fears of a potentially ruinous fallout for the eurozone and the world economy heightening ahead of the vote,Prime Minister Manmohan Singh on Saturday called for resolute action by Europes leaders to resolve their financial problems.
In a statement issued before his departure for Los Cabos,Mexico to join the seventh G20 leaders summit on June 18-19,Singh cautioned that continuing problems in the eurozone could further dampen global markets and adversely impact Indias own economic growth.
The situation in Europe is of particular concern… (as the euro area countries are) Indias major investment and trade partner. Continuing problems there will further dampen global markets and adversely impact our own economic growth, he said.
Eurozones collapse could trigger a prolonged period of stagflation (no growth and high inflation) or deflation in the global economy and this could further dry up capital flows into India and hit exports. Indias GDP growth has slowed to a nine-year low of 5.3% in the March quarter and other economic data (industrial production,exports,imports,investment demand) have all been grim lately.
Singh said the need to revive global growth was an issue of immediate concern that leaders had to address. I will stress the need to ensure primacy of the development dimension in the G20 deliberations and the need to focus on investment in infrastructure as a means of stimulating global growth, he said.
The Prime Ministers assertion comes at a time when there is growing recognition of the need to focus on creating growth impulses for the faltering world economy,as is manifest in Germany coming under greater pressure from the rest of Europe,even Washington,to enable countries like Greece and Spain refinance their government debt.
On Friday,in a telephone conversation with Singh,US President Barack Obama highlighted two short-term priorities: devising emergency plans to cope with the eventuality of a precipitous eurozone crisis and focusing on growth.
Despite growth slowing in India and China,the Prime Minister reiterated that the BRICS countries (Brazil,Russia,India,China and South Africa) remained the new growth poles of the global economy and said that as the current chair of the grouping,India will host an informal meeting of BRICS leaders prior to the summit with a view to influence the agenda.
Faced with the double whammy of high fiscal and current account deficits,India will unhesitatingly welcome capital inflows at this juncture. The government has just concluded elaborate roadshows in a host of countries to attract Qualified Financial Investors (QFIs),a new class of investors who have recently been allowed to directly access to the countrys equity and debt markets.
It is reckoned that Indias resilience to another downward spiral of the world economy and the resultant flight of investors to the presumed safety of the dollar would be much less than that in 2008 in the aftermath of the post-Lehman financial mayhem.