Eurozone Crisis, Eurozone Crisis Effected Indian Exports, Indian Exports in Trouble Cause Eurozone Crisis, Euro Fallen 12 Percent Against Dollar

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Bikky Khosla | 18 May, 2010
With the euro trading near 4-year lows recently amid warnings from European leaders that their $1 trillion loan backstop for troubled governments would not be enough to defuse the continent's crisis, it may spell trouble for Indian exporters to Europe.

The Euro has fallen by 12 percent against the dollar over the past week and with the private sector's demand in the continent still weak, growth may falter further. In rupee terms, the Euro, which was at Rs 67.4 at the beginning of the year is now worth Rs 56.4 which is indication enough of the impact the crisis is likely to have on the export prospects of the country.

So slower growth in this area will mean slower growth for firms in these markets. With Europe accounting for about 20 percent of India's exports, the country's exporters may now be hit by the crisis and the sectors that are likely to bear the brunt are the export-driven sectors such as textiles and software. About 22-28 percent of the revenues of India's top tech majors come from Europe and a fall in the value of the Euro will definitely hit their revenues.

Finance Secretary, Ashok Chawla too accepted the fact that the financial turmoil in Europe will have some adverse effect on India's exports.

A study by industry body ASSOCHAM too underscored my apprehensions saying that "...exports to Europe could witness a slump of close to 10 percent and even the government's overall export target of $200 billion for this fiscal could be at stake if the Eurozone sovereign crisis spreads to more countries of the European Union (EU). There may also be cases where companies from the crisis-hit countries might ask for their payment schedule to be restructured."

The good news however, is that the European Union and the International Monetary Fund (IMF) have announced a $1 trillion emergency financial aid package to debt-driven nations like Greece, in a bid to stabilise world financial markets and curb the fall of the Euro. Moreover, exports of gems and jewellery, marine products, tea, fruit and vegetables, tobacco and plastic products are unlikely to be adversely affected even if the crisis persists.