RBI'S CAUTION DUBAI CRISIS MAY NOT AFFECT INDIA SERIOUSLY

Like beauty, economic recovery, lies in the eyes of the beholder. Those who see the glass half full are upbeat about the state of the Indian economy and believe the positive reports emanating from the US and Europe that the worse is over. Since the stock markets have been on an upswing, fuelled by usually optimistic media reports about strong economic data, RBI Governor D. Subba Rao has thought it fit to send out a note of caution to the over-enthusiasts. India's recovery from the slowdown, he says, is "still fragile". And to back his claim, he has pointed to (a) the decline in exports for 12 months in a row (b) the lower demand for non-food credit and (c) an 18 per cent dip in the kharif output.

The RBI Governor's sane advice came on a day when the stock markets the world over were rattled by the debt woes of the state-owned investment conglomerate, Dubai World, currently saddled with $59 billion worth liabilities. Experts are still assessing its impact on global financial institutions and the nascent global economic recovery. Banks and reality companies are expected to face the heat. The RBI has asked the banks about their exposure to the troubled West Asian city. Unofficial reports put India Inc's risk at Rs 7,000 crore. Speaking in Chandigarh on Saturday, Finance Minister Pranab Mukherjee ruled out any major impact of the crisis on the Indian economy, which is quite resilient. Even if there is no serious damage, the positive sentiment has definitely given way to fears of another Lehman Brothers in the making.

In an increasingly inter-connected world, bad news anywhere hurts everyone. In a belated admission, the RBI Governor said India was affected by the global crisis "because we were more globally integrated than we consciously recognised". To strengthen the recovery, the RBI and the government will have to support the engines of growth and continue the fiscal stimulus until the country is on a firm ground. Quite an optimist, Mr Pranab Mukherjee is seeing "a beginning of the end of the financial crisis".