Indian economy to be marginally hit by Iraq war

Wednesday, 19 February 2003, 08:00 Hrs
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NEW DELIH: The Indian government Tuesday said the possible war in Iraq will only have a marginal impact on its economy in the short-term because of an expected recovery in domestic demand.

"The impact of possible war in Iraq on growth prospects of Indian economy is likely to be marginal in the short run," Anandrao V. Adsul, minister of state in the ministry of finance and company, told Rajya Sabha in a written reply.

"The overall growth performance of the Indian economy is unlikely to be seriously affected by the developments in the Gulf, due to clear signs of revival of domestic demand and the resultant buoyancy imparted to the domestic economy," he added.

The minister said the impact of the possible U.S.-led strike on Iraq on Indian economy would also depend "critically" on the duration of the conflict.

"While there may be a temporary set back to our exports of goods and services to the Gulf region, overall exports are unlikely to be affected too long," he said.

Adsul said the major impact would, however, be felt on international crude oil prices. He said India is well equipped to finance higher import bill in the event of a steep escalation of global oil prices.

The minister said a possible surge in oil prices would not result in any sharp jump in domestic inflation rate, as the current inflation rate and level of food stocks are very comfortable.

"Remittances from the Gulf region may also go down temporarily, the decline being preceded by a probable increase in remittances in anticipation of the conflict.

"With an observed tendency for a surplus in current account and comfortable foreign exchange reserves at more than $70 billion, vulnerability of balance of payments to such changes, however, appears to be limited in the short run," he said.

Capital markets may, however, witness a slight stiffening of interest rates with "limited decline in sentiments in stock markets followed by a quick recovery."

Source: IANS
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