Japan crisis: ‘Impact on India will be marginal'

The impact of the Japanese crisis on India's trade will be marginal since Japan accounts for only two per cent of India's exports mainly comprising seafood, cashew, coir products and spices, according to Dr V.K.Vijayakumar, Investment Strategist, Geojit BNP Paribas.

However, as an important exporter of these items to Japan, Kerala is anxiously assessing the potential impact over the crisis. In an informal meeting with the reporters here, Dr Vijayakumar said that the negative fall out of the Japanese crisis on the Indian economy will be insignificant and the second half of 2011 can throw up opportunities as Japan starts to rebuild.

Japan is the sixth largest foreign investor in India, having invested $22 billion during 2000-10. Regarding FII investment in India, he said, Japan is not a major player with only 10 Japanese FIIs registered with SEBI.

Major problem

The disruption in global supply chains caused by the havoc in Japan is a major problem, but this can prove to be an opportunity for companies which can step into the vacuum left by supply disruptions from Japanese companies, he added.

The tragedy in Japan is likely to shave off 0.5 per cent from their GDP this year. The World Bank has estimated the cost of Japanese reconstruction at $ 123 to 235 billion. The appreciating yen is adding to Japanese economic woes, he said.

Crude rise, a concern

He pointed out that the unrest in Middle East North Africa (MENA) region has spiked the risk premium on crude, which resulted in quoting of the Brent crude at $115 a barrel. If crude sustains at this level for an extended period, it is likely to pose an inflation risk in emerging markets and growth risk in developed markets.

Emerging markets, which are looked upon as a crucial growth engine of the global economy with a growth rate of over six per cent, have the ability to sustain the global recovery provided crude doesn't cross $120 a barrel.

In the event of the crisis spreading to Saudi Arabia, which is a low probability event as of now, crude can spike to $150 with devastating consequences for the global economy, he said.

Emerging Market economies which have been sustaining a high growth rate in recent times are facing a major headwind in high inflation. In India, stubborn inflation, which has not yet succumbed to dear money policy, is the major macro economic issue now. Sustained high inflation, which will necessitate further monetary tightening, is bad news for stock markets.

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