US financial crisis not to impact Indian financial system: Montek

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New Delhi, Sep 19 (UNI) Planning Commission Deputy Chairman Montek Singh Ahluwalia today said the direct impact of the US financial crisis will not be significant on the Indian financial system, even though there may be some indirect outcome by way of reduction in foreign flows.

However, in view of the comfortable foreign exchange reserves, the resultant adverse influence on the foreign flows can be managed without any significant impact on the economy.

''The Indian financial system is not exposed to new and innovative financial instruments,'' Dr Ahluwalia told reporters here.

As most economies all around the globe will be affected by the US financial crisis, the Indian economy too would be affected as a result of global liquidity shrinking and slowing down of financial flows.

Dr Ahluwalia, however, said the country needs good regulation.

''The idea is not to insulate India from the rest of the world, but we should not run into a situation of regulatory gaps. In short, there was need for having sound regulatory systems. It is not just a question of just tightening screws of the regulatory systems, but to have sound regulation,'' he said.

Dr Ahluwalia said foreign inflows may not be of the magnitude that the country had expected, but there was no cause for concern.

Besides, the impact on foreign flows will be of a temporary nature.

''I have looked at data given by the Finance Ministry'' he said, adding that he had come to the conclusion that the impact of the US financial crisis on the Indian financial system will not be much.

The US financial turmoil has engulfed a number of large corporates, such as the Lehman Brothers who have filed for bankruptcy, while another financial giant Merill Lynch had to sell its global assets at a discounted value to the Bank of America.

Global insurance giant had to get 85 billion dollars from the US Federal Reserve to prevent it from getting bust.

Dr Ahluwalia, admitted that the global slowdown will impact India's growth rate and in this context said the former Chairman of the Prime Minister's Economic Advisory Council C Rangarajan had projected growth rate of the Indian economy at 7.7 per cent this fiscal.

''However, a growth rate of 7.5 per cent in a year which is the worst year in of the world economy since 1929 is an outstanding achievement,'' he said.

Dr Ahluwalia said India has been reforming slowly and in a responsible manner and needs to continue moving that way.

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