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ENS ECONOMIC BUREAU
MUMBAI, JUNE 17: The Kargil conflict will definitely have its costs, but the Indian economy is robust enough to bear it even if the conflict takes a couple of months before it is resolved. ``In case the current situation drags on for three months, the drag on the exchequer would be between Rs 5,000 and Rs 9,000 crore, which is between 0.3 to 0.6 per cent of the GDP,'' says a study by ICICI Securities and Finance Company (I-Sec).
The costs would escalate if the conflict blows up into a full-scale overt war, I-Sec said, adding, ``at this moment, the possibility of a war does not appear.'' However, it said a large portion of the costs involved are sunk costs and it has estimated incremental costs to range between Rs 50 crore to Rs 100 crore per day. ``This is not a crippling amount,'' I-Sec said. The study further said the current conflict is concentrated along the Kashmir border and is not likely to hinder the Indian industry in any significant manner.
``The conflict is also unlikely to have an impact ontrade flows. On the capital flows side, there could be a slowdown in inflows as FII (foreign institutional investment) and FDI (foreign direct investment) money may adopt a cautionary post. However, the recent behaviour of FIIs suggest that they continue to be interested in Indian markets,'' I-Sec said, adding that the current level of foreign exchanges reserves (at around $ 33 billion) is comfortable, it said.
After the nuclear tests last year, the markets panicked as there was a fear that economic sanctions would lead to large scale selling by US banks. The fear proved to be unfounded, I-Sec said. FIIs who pulled out money at that time later brought back the amount.
In the current situation, international pressure is on Pakistan and not on India, I-Sec said, pointing out that economic sanctions have been lifted by the US Senate and flows from the World Bank and Asian Development Bank are expected to resume.
The market is unlikely to resort to large-scale selling, it stated. ``Money and currencymarkets have reacted to the current tensions at the Indo-Pak border. The rupee has dropped by about 40 paise against the US dollar. Though bond market yields have recovered a large part of the initial loss, markets continue to be nervous,'' the study noted.
However, stock markets have recovered in the last two days with Sensex rallying by 224 points in the last two days. The rupee also recovered partial ground.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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This story was printed from Net Express located at http://www.expressindia.com. Net Express provides a portal to India, with news from The Indian Express and The Financial Express along with sites on travel and tourism, the entertainment industry, the power sector, the environment and much more.
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