New Delhi: Reserve Bank on Tuesday said global financial crisis impacted India significantly despite sound banking system and negligible exposure of banks to sub-prime assets.
"The global financial crisis impacted India significantly, notwithstanding the sound banking system, negligible exposure of banks to sub-prime assets and relatively well-functioning financial markets," RBI Deputy Governor Anand Sinha said at the Finance Summit organised by IIM, Kashipur on February 11.
Sinha said the impact was mainly on account of the country's growing trade and financial integration with the global economy.
"The immediate impact of the crisis was felt through large capital outflows and consequent fall in the domestic stock markets on account of sell-off by foreign institutional investors (FIIs) and steep depreciation of the rupee against US dollar," he added.
On sovereign debt crisis on India, Sihna further said that with the euro area appearing to head for a recession and the global growth slowing again after a short recovery, growth in India too has moderated more than was expected earlier.
"Increase in global uncertainty, weak industrial growth, slow down in investment activity and deceleration in the resource flow to commercial sector led to dip in output growth," he said.
Inflation risks emanating from suppressed domestic energy prices, incomplete pass-through of rupee depreciation and slippage in fiscal deficit, further fuelled by food and commodity inflation have led to policy tightening.
"All these factors have resulted in the growth projection for India for 2011-12 being revised downwards from 7.6 percent to 6.9 percent," he added.