Ruling out any major impact of the ongoing crisis in the West on India’s GDP growth, former RBI governor Yaga Venugopal Reddy has said the impasse is very fluid and it is too early to assess its effect on the domestic economy.

Mr YV Reddy credited for firmly anchoring the domestic financial system and economy during the pre crisis boom that helped the country tide over the 2008 disaster earlier than expected.

He said that “Though there will be some spillover effect on our economy, it won’t be that grave as our growth is primarily driven by domestic consumption.”

Ruling out a recession in the short term, he said that a slowdown in global economic growth was certain in the mid to medium term.

Mr Reddy told PTI that “While the 2008 crisis was a revelation for everyone, the present crisis arising from the US downgrade by S&P and the lingering debt crisis in the Eurozone economies, is a realization of the fact that the fundamental problems are still not rectified.”

However, he cautioned that it was too early to assess the development as the situation was too fluid. Projecting an economic expansion of around eight per cent for the domestic economy, with a downward bias, he said to achieve that growth rate, our policy focus has to be fine-tuned at the earliest.

Whether there would be a flight of capital if the US economy slips into another recession in the wake of the last week's credit downgrade-from AAA to AA+, Mr Reddy said that “If there is excess liquidity in the US system, then we have a fair chance of getting more capital inflows. But if a serious slowdown kicks in, there could be volatility in the fund inflows.”

He added that “This is more so because the global situation is more complex and fluid today than it was in 2008. Moreover, the inherent strength of the economy is not as strong as it was three years (back) when the fall of Lehman Brothers yanked down the global economy into one of the worst recessions. Therefore, the key monetary focus should be domestic economy.”

(Sourced from PTI)