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US downgrade: China bristles, India prepares to capitalize

Published time: August 09, 2011 04:36
Edited time: August 09, 2011 17:11

An Indian stockbroker reacts while watching share prices on his screen during intraday trade at a brokerage house in Mumbai on August 9, 2011 (AFP Photo / Indranil Mukherjee)

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Asian markets have been hammered amid fears the US is heading for a recession, but India has reacted with optimism, saying it is ready to implement fast-track reforms to encourage domestic consumption and withstand the economic struggles.

­Many politicians and analysts in India believe their country is better equipped to cope with the downgrade of the US economy than any Western, especially European, economy.

India’s Finance Minister Pranab Mukherjee insists the US debt crisis will deliver only a short-term impact on the Indian economy.

In the long term, it is believed the BRIC countries will be less affected by what is happening in the US than other economies.

Actually, if investors move away from the US Treasury bonds, they might well feel more comfortable in China and India.

Chetan Ghate, professor of economics at the Indian Statistical Institute, says the biggest risk for India is a loss of investor confidence, which would undermine the country's ability to finance its growth. However he remains optimistic.

“After the initial panic has outlasted, investors will realize that emerging markets like India have strong fundamentals. They have strong structural reasons going into the future, such as strong demographic trends, high saving and investment rates. Those things will be factored after the panic, when people begin to see the mid-term and that what's happening in the rest of the world is not necessarily what is happening here in term of domestic needs,” he explained.

China has taken a tougher stance on what is going on in the US, calling the US debt debate immoral and irresponsible. Chinese newspapers recently said that the US should move away from borrowing its way out of the crisis.

On the other hand, India delivered much more optimistic response to the America’s actions, because they hope to benefit from the US debt crisis in some way.

Some experts, however, point out that while India may have been hurt less than many other nations by the financial turmoil, it has domestic problems of its own.

“I would agree that India is the least vulnerable, if we talk about BRICS. But India has a number of problems that are Indian: structural inflation, corruption in the government, interest structure. There is a list of things, and they are not related to the US crisis or the EU crisis,” Dr Peter T. Treadway, chief economist at the Hong Kong-based CTRISKS rating agency, told RT.

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