Impact of US shut down on Indian economy
Impact of US shut down on Indian economy
All the government bodies in US have been shut down indefinitely from the midnight of 1st October. This is expected to cause not only an economic set back to the country but also a loss of credibility if the crisis lasts for a longer time.
Why did the shut down take place?
-The fiscal year of US government runs from 1st Oct to 30th Sept every year. For the functioning of governmental bodies, the new budget must be approved by 30th Sept.
-This approval is provided by the congress of US which could not happen by the end of 30th Sept 2013 due to differences between the Senate – led by Democrats and House – controlled by Republicans.
-House Republicans demanded provisions to stop or delay the Obamacare law to approve the Spending Bills but Senate Democrats refused to link the two things and the budget could not be approved.
-It implies that the government does not have the authority to spend till the budget (Spending Bills) is approved.
Effect of US shut down on India
-While the US shut down may not have any immediate impact on the Indian economy, a long run shut down may hurt macro-economy.
-The strength of Rupee to a large extent is dependent on the inflows that the country is getting In FCNR (B) accounts. The rupee might depreciate if this inflow slows down due to US shut down.
-The pharmaceutical companies might be bit hard because a large number of companies export about one-third of their drugs to developed markets and US is one of the major buyers.
-Most of the IT projects that the Indian companies work on are with the private sector, so it should not impact them directly. However, during the last shutdown in 1995-1996 a large number of visa applications remained unprocessed per day. If the history repeats, the IT companies might get hit badly as they depend on US travel of their employees to meet customers and delivery.
-The clearance at commercial ports in US might be effected which in turn may affect the Indian exporters.
