India is the least likely among Asian economies to be affected by the impending modest US-led slowdown, said a report by Lehman Brothers.

Titled "India: Everything to Play For" the report said that as long as the US GDP grows by about 1.5 percent or more in 2008, the impact of Indian GDP growth should be relatively mild.

However, if US GDP growth falls to below 1 percent, causing a severe global economic downturn, the impact could be slightly more.

Mr Robert Subbaraman, Chief Economist Asia Ex-Japan, Lehman Brothers, said that it is likely that the US Federal Reserve may cut key interest again and this will result in capital flows in emerging economies, including India.

India will continue to attract lot of forex inflows and one obvious problem of the huge inflows is the rapidly appreciating rupee.

"The Reserve Bank of India is doing a good job by letting the rupee appreciate a little bit. Another option is to liberalise the capital account norms, and allow more capital outflow to offset the inflows, which also the RBI has done," he added.

The RBI can also manage the pace of the rupee's rise through intervention but will have to follow up the intervention by sterilisation through tools like MSS (Market Stabilisation Scheme), he said.

He also said that a hike in CRR by the RBI is likely in the monetary policy later this month.

Mr John Llewellyn, Senior Economic Policy Advisor, Lehman Brothers, said that India is the 12th largest economy in terms of current exchange rates and the third largest (after US and China) in purchasing power parity terms.

"India could grow faster than this and sustain the pace, provided it presses on for structural reforms," he said.

Mr. Rakesh Joshi

Joshi Enterprise

Manager, Joshi Enterprise
Dispur, India

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