Industry body ASSOCHAM said that the downgrading of US sovereign debt rating will have cascading effect on markets across the world and could slow down foreign direct investments into India.

The Associated Chambers of Commerce and Industry of India said that with talks of a double dip recession in the world’s largest economy, Indian exports are also likely to be impacted.

Mr DS Rawat secretary general said that “The IT industry too will feel the heat as uncertainty and negative sentiments blow across global businesses.”

India is the 14th largest creditor to the United States with an overall exposure estimated at USD 41 billion (INR 184,500 crore).

However, India remains a potentially good growth story with a strong domestic market driven by 1.2 billion people. ASSOCHAM’s GDP growth rate projections continue to hover around 8% with plus or minus movement of half percentage point during 2011-12 despite instability created by the euro zone debt problems and August 5 credit downgrade of US debt by Standard & Poor's from AAA to AA+ with a negative outlook.

Mr Rawat said that a slow pace of recovery in the United States could also prompt hard hit sectors in India to call for another stimulus package by the government to boost investments and demand.

He added that weakening global equities have triggered concerns about foreign fund outflows. This could put pressure on Indian rupee. The Reserve Bank of India will need to maintain sufficient rupee and foreign currency liquidity to prevent any excessive volatility in local markets.