Europe has recently spotted itself in a financial turmoil, which is also impacting some of the developed economies. European debt crisis has beset the European Union since 2009. Domestic companies or financial institutions’ debt syndication for raising foreign funds have seen a major decline in the recent years. This is because the foreign banks have reduced their exposure to the emerging global market due to the Eurozone debt crisis.
Indian financial entities are jolted by the depreciating rupee value, trying to further cease the raising of foreign currency loans through external commercial borrowing (ECB). Exports from India to European countries and the US have declined, and this has added trauma to India’s industrial growth. There was a rapid increase in current account deficit(CAD) in 2011-2012. It further went up from 4.2% to 5% GDP in 2012-2013. This deficit was unsustainable and was a major concern for India because there was already a pressure on sharp depreciation of Indian rupee value.
"Certainly, some foreign banks are not participating strongly in the debt syndication market, as they were in the past. The availability of syndication has shrunk a little bit," HSBC India chief executive Stuart A Davis told PTI in Mumbai.
"Raising funds through syndicated loans has turned costlier, as most foreign banks have frozen or reduced their lending abroad, due to the Eurozone crisis," Infrastructure Development Finance Corporation (IDFC) senior director for resources SJ Balesh said.
With the Eurozone crisis remaining unsettled, a European Union Summit was held in Berlin to solve the present European debt crisis problem and to save splitting of Eurozone in December 2011. Even after the persistent attempts, the crisis has prolonged, causing decrease in aggregate demand that adversely affected economic growth and loss of revenue to the government, in turn, resisting to close budget gaps in the economy.
European debt crisis had a paramount impact on Indian economy, influencing capital inflows into India, which has resulted in a crash in India’s stock markets, affecting investment sentiments of the corporate world.
However, to ensure better growth, productivity of capital has to be raised through better governance in the next few years, and the subsequent recovery from Eurozone crisis will therefore help enhance the Indian economy.