A new study by the Federation of Indian Chambers of Commerce and Industry (FICCI) has expressed concern that the sovereign debt crisis of Greece may spread over to other European nations which could have catastrophic impact on Indian exports.

The Quick Survey by FICCI, eliciting the views of a group of economists, is of the view that there is a good chance that other vulnerable economies in the region such as Portugal, Spain and Ireland may face a situation similar to that of Greece given their already weak public finances.

A majority of the economists have also pointed out that countries like France could also come under some pressure as the countries' banking sectors have large exposure to some of the above mentioned countries.

According to the study, the impact of the Greek crisis on Indian exports will be marginal if it remains restricted to Greece, and even if it spreads to other PIIGS (Portugal, Ireland, Italy, Greece and Spain) as India's exports to this part of the globe are limited, but a generalized and widespread slowdown in the EU region, will be a negative development for Indian exports as EU region accounts for about a fifth of our total global exports.

The study has also pointed out, "As banks in the EU region suffer losses, they could well cut down on their overall operations including the business of trade finance and in case this happens then like all countries India too would see a slowdown in exports to the EU region."

A small set of economists have opined that this slowdown in exports could shave off about 0.25 to 0.5 percentage points from India's GDP growth in the year 2010-11.

According to the survey results, the debt crisis in Greece is likely to result in lower debt related flows, slowed-down capital flows into India if not completely reverse in the coming six months, and a little tighter liquidity situation in the days and months ahead.

The surveyed economists are of the view that the Reserve Bank of India (RBI) would ensure enough liquidity in the system to keep the growth momentum going, and may therefore not be in a hurry to raise interest rates.

According to the study, India's inflation is likely to dip in the second half of the year due to the high base effect in the same period last year. Also, if the monsoon this year is good as forecast, the inflationary pressure would ease.

"RBI can therefore be expected to act keeping in mind the liquidity situation and this should mean some pause in policy action," it added.

Economists feel that European countries with high fiscal deficit and high debt obligations have announced stringent austerity measures, which will lead to a reduction in consumption and investment demand in the economy and put a break on growth.

Also, the study says, as credit ratings of some of the economies get downgraded, it will become difficult for them to raise fresh money from the markets. As a result, global investors could single out the weaker economies and be reluctant to divert resources to such regions, which in turn, would limit availability of funds for these countries and could put further pressure on their growth rates.   

"In short, while one can expect global growth and global trade flows to see some moderation in the near term, the dip would be much smaller than what was seen during the 2008/09 great recession," the FICCI study says.