‘Eurozone break-up could hit India in face’

On the impact of a possible Greek exit from the Euro on the domestic economy,he said,”We are not out of the woods. There is indeed some risk that this is going to last a while. It will affect us.”

Basu said a deeper European crisis would be a jolt and it could spin Europe into a big crisis. “It is going to be a difficult one or two years for the world for sure.”

On the positive side he said,”Thankfully,Europe is no longer our biggest export destination,to the Middle-East we probably export more today.”

But he said the impact on India will be indirect.

“Europe being a major driver of growth and if it slows down,even if we don’t get a direct hit,the US is going to get hit immediately,China is going to get hit immediately. So,the impact on us will come to us through our trading partners.”

Explaining the rationale for his fear on the global front,Basu said the problem will arise in 2014,when the LTRO (long term refinancing operations of the European Central Bank or ECB) payback comes in December 2014 and February 2015,when

as much USD 1.3 trillion need to be paid by 800 banks to the ECB. This will sap the entire banking system,he warned.

Basu,however,expressed hope that by 2015 the emerging economies,will be better off by that time. “The emerging economies are in a position to build strength (during this interval) so when we come out of this tunnel,we will be at the top of it. We will come out on top of growth drivers by 2015,” he said.

Speaking in the ‘War and Peace programme’ of Doordarshan Basu said if there is full fledged global economic crisis,the economic tsunami’s waves can come up to Indian shores in a big way after two years.

“But if the crisis is there,we will take cover,we have plans of doing that but these waves will be waves that will come up on our shore in a big way,” he said adding that certain protective measures can be taken to cover the country “as much as possible”.

When asked whether by any account it was possible to rule out such an economic tsunami,he said,”It will be very foolish to feel that we are impervious to this or if we bury our head in the sand and say that it is not coming now.”

He said India has to be prepared for the contingency even as it is hoped that the crisis does not happen.”

On rupee,he said it would regain its strength. He categorically denied that the strength of the country can be judged in terms of the rupee’s exchange rate. “Very often we take the militaristic view of the exchange rate. That we have to get rid off. The rupee’s strength has got nothing to do with that whether it is at 54 or 44.”

The rupee had recently decline all-time low of 56.40 against the US dollar.

He went on to explain that “China in fact,through out has had a depreciated currency. And it has a very strong economy and (is) very strong militarily”.

“We do not want huge depreciations but we must get rid of this mindset where we treat the value of rupee as the strength of the economy,” he said.