US crisis may hit exports but GDP intact

The downgrading of US sovereign rating will negatively impact exports and moderate capital flows into the country but overall economic growth will remain robust at 8.2 per cent, said Prime Minister's Economic Advisory Council Chairman C Rangarajan.

"More than the downgrade what will be the impact for India and the rest of the world will be the slow pace of recovery of the US. It will have implication for trade flow and capital flow," Rangarajan told PTI.

Slow growth of the US and Europe will have some adverse affect on Indian exports, particularly on export of services, he said.

"Uncertainty in the world can also result in less capital flow to the developing economies like India. However, I think the US will not lapse into recession. It will grow at 1.5 per cent in this calender year," he said.

"I also believe that India's growth will be maintained at 8.2 per cent despite uncertainty in the global economy," he said.
Even Finance Minister Pranab Mukherjee earlier said that the downgrading of US sovereign rating will have some implications on India, but there is no need to press panic button as fundamentals of the economy remain strong.

Rating agency Standard and Poor's recently lowered the sovereign credit rating of the US to AA+ from AAA, a development which raises concerns that investors will lose confidence in the American economy.

S&P said that predictability about US policy making and political institutions have weakened at a time of fiscal challenge. US Treasury official, however, said the decision of S&P, was flawed.