Stocks and the rupee wilted as investors scrambled for safe havens, fearing a financial catastrophe if Greece exited the euro zone and amid few signs of the Indian government acting in a purposeful manner to fix the nation’s deteriorating finances. But Finance Minister Pranab Mukherjee said the India growth story was still intact and that austerity measures were in the pipeline, though he admitted it was politically difficult to raise prices of subsidised petroleum products such as diesel, a step recommended by most economists. Stocks sank to a new four month low and the rupee fell to its worst close as panic gripped investors and demand from importers overshadowed the Reserve Bank of India’s US dollar sales, which proved to be too little, too late. The rupee has recorded the biggest drop since December at 1.3% to 54.49 per US dollar, making it the worst-performing currency in Asia this year. It touched an all-time low of 54.52 earlier in the day, and is down 6.6% this quarter. The 30-share BSE Sensex tumbled 1.8% to 16,030.09 on Wednesday, its worst close since January 9. Declines outpaced advances by 1.76 to 1. The MSCI Emerging Markets Index fell 2.5% and the Shanghai Composite declined 1.2%.
The debacle suffered recently by the Indian economy has led to some speculation over whether Indonesia, rich in resources and a stable macro economy, would replace the second most-populous country in the BRICS grouping, a moniker coined by Goldman Sachs for the fastest-growing economies in the world.