Long-term impact of Greek crisis unlikely: Gokarn

The Greek debt crisis could trigger short-term vulnerability in the Indian markets, though its long-term impact might not be severe, Reserve Bank of India (RBI) Deputy Governor Subir Gokarn said here today.

While there could be capital outflows from emerging markets, India being a relatively stronger market, the effect might not be severe, he said on the sidelines of a seminar organised by the Indian Chamber of Commerce.

“Though India is in a stronger position among the emerging markets, we cannot rule out net capital outflows,” Gokarn said, adding certain economies, which could be otherwise attractive destinations, were not proving to be attractive, and there could be capital inflows instead.

In the last week of April, Standard & Poor’s cut Greece’s credit rating to junk status, and reduced Portugal’s rating too, which led to a plunge in stock markets across the world.

The CNX Nifty plunged 259.95 points, or 4.93 per cent, on a weekly basis to close at 5,018 last Friday. The BSE Sensex also fell 789.60 points during the week.

Gokarn expects short-term vulnerability. “We might see some volatility. Every time there is some development somewhere, the immediate reaction of the investors is to move to safe havens,” he said.

When asked if capital outflows could lead to the strengthening of the dollar, Gokarn said, “There could be a strengthening of the dollar against all other currencies.”

European policy makers today unveiled loan package worth almost $1 trillion to contain the Greek debt crisis. “It will be reasonable to say the long-term impact is not going to be severe, as some solution will be found out,” Gokarn added.

RBI paper on food inflation soon
The apex bank would come out with a report on food inflation in a few weeks, Gokarn said.

“The study is a part of RBI’s research agenda to know what is driving food prices, as they have significant impact on inflation. We are keen to know what are the long-term and short-term factors driving food prices, and if the supply side is capable of meeting this demand,” Gokarn told reporters here. The food price inflation hovered around 16.04 per cent for the week ended April 24.

“We are planning to consolidate the early findings and come out with a study paper over the next few weeks. There has been a structural change in the demand pattern of food. There has been an increase in demand for food commodities. Largely, people are moving from primarily a cereal-based diet to diversified nutrition,” he pointed out.

The rise in demand for sugar, milk and pulses indicated a diversification in the nutritional choices of the people, he added. Gokarn said non-food manufactured goods remained a concern on the inflation front, as it accounted for 52 per cent of the wholesale price index.

Also, the possibility of a rise in oil prices could further fuel inflation.

Gokarn also said oil prices, which had come down to $75 a barrel from $80-85 a barrel, could go up again.

“Oil prices will start recovering and it is again going to creep up. This will add fuel to the fire,” he said.