The US government has shut down for the first time in 17 years after the Congress failed to break a deadlock over the country’s debt ceiling. This puts nearly 800,000 US government employees out of work temporarily.
In a globalised world, where economies are becoming more linked, ripples of a shutdown of this sort will be felt everywhere.
Here is a look at its impact on India:
NO DIRECT IMPACT FOR NOW: Analysts insist that the shutdown is only partial costing $300 million a day. Essential services, and those departments which earn revenues from customers, will continue to work. The shutdown is mainly going to impact national parks, and departments like internal tax and environmental protection. These do not directly affect India.
VISA ISSUANCES COULD BE HURT: However, if the shutdown continues for over a fortnight, there will be a visible impact. The first to be affected could be visa issuances. This will pinch Indian IT companies, which regularly send employees for work on overseas projects.
MARGINAL OR NO IMPACT ON IT COMPANIES: A prolonged shutdown could impact US business environment. During such times, companies could become hesitant in giving new orders or planning new investments both within and outside the country. A marginal impact is likely on Indian businesses that service the market. US accounts for 60% revenue that Indian IT services firms generate annually. Nasscom, the IT sector industry body, clarified on Tuesday that most Indian companies service private companies in US and not the Federal government.
STREET ON THE EDGE: If the US does not raise its debt ceiling by October 17, it won’t be able to borrow money to pay bills that have already been approved. The US will then default the first time, which will be catastrophic for the world economy. Credit rating agencies have yet to issue any significant warnings that could affect global capital flows. Traders in India would have to be careful and perhaps brace for a volatile stock market trading sessions.
CURRENCY VOLATILITY: Until the US Congress manages to break the dead-lock, financial markets worldwide will be cautious. Money could move out of US treasury and create volatility in financial markets as money is rapidly pulled out and put in markets. This could increase volatility in the currency markets. The Indian rupee is vulnerable in such a situation. It could rally in the short-term and fall when the crisis is resolved.
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