Eurozone Crisis

Rohit Prakash Singh
Student of Faculty of Management Studies

The decrease in the industrial production, the growing deficit in the current account, the untamed inflation rate, soaring interest rate, decreasing exports and the back flow of FII's have marred the Indian growth prospect now for a longer time since 1991 economic reform. The current dismal position of Indian economy has been a concern for the policy maker and their efforts to vanquish the effect has been failing.

The euro zone crisis which originated from Greece is now slowly engulfing whole of the Europe and spanning its aftermath to the whole world. In today's era of globalization, we can say no economy is safe from the global turbulence. The world was in the process of overcoming the American subprime crisis, but on the way, its stringent effort was tested by another crisis hovering over Europe. Today confidence remains desperately low, particularly within financial services, but also in public sectors, where much-needed spending limitations are contributing to current unemployment and spreading uncertainty regarding the future. Pressure on household spending is causing havoc on the high street too and many major retail brands have shut their doors.

India whose sixth of export is to Europe and is major importer of European Union was certain of being adversely affected by this crisis. Rising oil prices, depreciating rupee, stagflation, weak economic policies and unwrapping of corruption cases marred the interest of investors. Decrease in the investment, production of goods and services, exports hampered the growth forecast of India. Since the foreign investors where speculating this slowdown, they started to pull back their investment. With the Euro zone crisis intensifying further, we might see a fall in dollar lending by European Banks which will prop up the dollar weakening rupee. This will lead to higher cost of oil imports and a subsequent bigger current account deficit. Inflation is bound to rise again. On the domestic scenario, small business sitting on pile of debt will see their interest payments go up thus affecting their margins and the overall market in which they operate. Further, companies in effort to cut down their expenses will shred employees. This will raise the unemployment in the country. For e.g. the fifth of export to Europe is from textile industry. The demand being low will surely raise pressure on the textile industries to find a new market sooner. Lack of market availability will decrease the production and in turn will lead to generation of big pool of unemployed people.

The real affect yet has to be estimated and the policy framers have to be proactive to mitigate the effect. But, should we blame the euro crisis as whole responsible factor for the current dismal performance of Indian economy growth? For sure the GDP fell below the expected figure, but should we blame the global forces for it? The political instability arising due to the coalition form of governance, the government regularly being exposed of corruption cases and inability to tap the growing market of Latin America, Africa and other underdeveloped countries will create barrier on the way of fighting the ripples of global turbulence.

Although the negative impacts are of major concern, a disguised opportunity also hovers in front of the India Inc... With outward trade from developed countries slowing to the underdeveloped
countries, the Indian industries have huge market opened to be tapped. With suitable trade policies and government vision, these markets can provide a way out of this depression and leave India in a better position to tackle the shaky scenario.

"The growth rate in India is slowing down, it will slow down further," says Enrico Atanasio, senior vice president, commercial, Fiat India Automobiles Ltd. "If it (the euro zone collapses) happens, the implications will be very strong." But the industries are having a positive attitude and show confidence in the government of European Union's, that they will find out some way to lead the dwindling world economy to new era of growth. With this view, the Indian government is expected to forecast a better futuristic view and safeguard the interest of companies.


1. The Hindu
2. The Business Standard
3. The Economist

Rohit Prakash Singh
Student of Faculty of Management Studies

Source: E-mail August 22, 2012




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