Stressing that global developments, particularly those in financial markets, have the most direct and serious impact on the financing conditions in the emerging markets, India has warned that any 'abrupt and disorderly' adjustment to global imbalances might have 'serious adverse implications.'
Addressing a seminar in New York, Governor of Reserve Bank of India Y V Reddy said India does not depend on the international market for financing the fiscal deficit and consequently to some extent adverse consequences of global developments would be muted.
But there could be a spill over effect of global developments on domestic interest rates and the fiscal position of the government could be indirectly impacted through the nature of management of foreign exchange reserve held by the Reserve Bank, he said on Thursday.
Similarly, he emphasised, "Any abrupt adjustments in global imbalances may affect corporates, banks and households in India though the impact may be less than some other emerging economies," he said.
In this context, he stressed that a coordinated effort is necessary to correct the imbalances to prevent sudden downturn and international institutions need to play a proactive role.
"The process of correcting imbalances can be disruptive if it is sudden and unexpected," he added.
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