Though the finance ministry and the stock markets may have largely shrugged off the US shutdown, it could still send a tremor down the world economy as the impasse could lead to a debt default by the country later this month. For India, it raises the prospect of a hit on exports as well renewed volatility in the Indian rupee.
“We hope the impasse will be resolved so that there is no spillover to the global economy. As of today, I don’t see any major impact on the Indian economy on that account,” said Arvind Mayaram, secretary, department of economic affairs on Tuesday. The US government shutdown that began late Monday night, after Republicans and Democrats failed to reach an agreement on spending and Budget largely due to differences over US President Barack Obama’s proposed healthcare programme, will impact almost all essential services and put eight lakh US government employees on furlough.
Though analysts believe that at present it would have limited impact in sectors such as IT or tourism that are dependent on Visa clearances, the bigger concern looming is October 17 when the US government would hit its debt ceiling of $16.7 trillion.
If by then the Congress is unable to strike a deal, the US would face a default on treasury bonds and also slash its spending, that would immediately impact the global economy and could destabilise efforts government and RBI have taken in recent months to support the rupee.
“If they are not able to resolve that issue, the US faces prospect of default on repayment of treasury bonds, an eventuality which can be a bigger global disaster than collapse of Lehman Bros in 2008. The US bonds, at times are considered safer than cash.
That faith could get destroyed and a massive tremor could follow then,” said Rana Kapoor, president, Assocham and MD&CEO, Yes Bank.
Sunil Sinha, director (public finance) at India Ratings and Research said that a debt default will have a ripple effect on financial markets across the world and will impact the risk appetite of investors.
“This will once again put pressure on the rupee as investors will look for more secure assets,” he said.
Global stock markets shrug US crisis; Sensex gains 137 points
Stock markets worldwide climbed on Tuesday while safe-haven gold and Treasury bonds fell as investors largely shrugged off the first partial shutdown of the US government on bets that it would be short-lived.
MSCI’s world equity index, which tracks shares in 45 countries, rose 0.6 per cent to 384.45. The Dow Jones Industrial average gained 62.23 points to 15,191.90.
Meanwhile, in India, the benchmark BSE Sensex was up 137 points after current account deficit numbers came in better than expected.
The Nifty on the NSE rose 44.7 points, or 0.78 per cent, to 5,780.05. The SX40 index on the MCX Stock Exchange closed at 11,619.91, up 53.26 points.
Realty, bank, capital goods and auto sector stocks gained, while oil and gas and power shares fell.