Antennae were raised in India as the “Dubai shock” — the mammoth $59 billion debt repayment crisis to hit Dubai World, a state-owned investment holding company in the Gulf emirate — caused the Bombay Stock Exchange’s benchmark Sensex to plummet over 600 points in early trade on Friday, amid ripples of fear of “more Dubais” lurking in the shadows.
Both the finance ministry and the Reserve Bank of India worked hard to calm these fears, saying there was no need to panic, and the government said it did not expect any major effect in India.
The Sensex, which had fallen 643 points to 16,211 during in the day, recovered considerably to close at 16,632, just 223 points down.
It was primarily a property bubble that burst at a time when global economies are showing some signs of recovery.
The RBI governor, Mr D. Subba Rao, said it was too early to comment on the impact of the crisis as one needed to get the whole picture. Speaking on the sidelines of a function in Hyderabad, he said: “I have asked officials at the RBI to examine the likely impact of the Dubai debt default. After that I will communicate to the public the implications of the crisis.”
The finance secretary, Mr Ashok Chawla, was more forthcoming, and said the Dubai crisis had affected just one company and he did not expect any major impact on India. However, he added that the government would have to study the impact of the debt crisis on India. “It’s one company, a one-nation issue — it cannot be generalised. I don’t think it will have a major impact (on India).”
Indian engineering giant Larsen and Toubro said the money due to them for projects was around $20 million to $25 million. ICICI Bank and Bank of Baroda also brushed aside any impact on them. ICICI Bank said there was no material non-India-linked exposure to Dubai corporates.
Indian companies that have operations in Dubai are anxious about the crisis but are hopeful that its impact will be marginal on their overall business.
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