India braces for impact of slowdown in US economy

GURGAON: Drastic cut in interest rates by the US to avert a recession will affect India, but New Delhi will take steps to counter such an impact, Finance Minister P Chidambaram said on Thursday.
   
Without elaborating on measures that the country may initiate to insulate itself from a possible recession in the US, he told industry captains at the CII summit here that "India is not so dependent upon the US as some countries are.
   
"Our exports to the US are significant, but not so significant that we will be gravely affected."
   
Responding to a query on the impact of a US slowdown on India, he said, "It will have some impact, of course.

However, if the US, as a response to the slowdown, cuts interest rates very drastically that will widen the difference between the US interest rate and Indian interest rate and that has consequences like capital flow and faster appreciation of the rupee."
   
Since October 2006, the Indian currency has risen over 15 per cent against the US dollar, the main invoicing currency for trade.
   
Although India enjoys a trade surplus with the US, which also happens to be its largest trading partner, Chidambaram said New Delhi has "equally large exports to Europe, to eastern countries like China and Japan. Therefore, I don't think that a slight slowdown in US economy will immediately or drastically affect India's growth prospects."
   
The Prime Minister's Economic Advisory Council on Thursday projected that economic growth might moderate to 8.9 per cent in 2007-08 fiscal against the July forecast of 9 per cent.