Swine flu scare a hurdle in economic recovery: Moody's

NEW DELHI: Swine flu scare has come in the way of India's efforts at economic recovery and some slackening sectors like tourism and trade may witness further slowdown, says Moody's.

The government finances, already under pressure after dolling out stimulus packages to spur slowing economy, will be strained further by the expenses to prevent deadly swine flu, said Moody's economy.com, a research arm of Moody's.

"Swine flu has put up a hurdle on India's path to economic recovery, Moody's said, adding, tourism and trade which already began (showing) signs of fatigue in December quarter may experience a further blow," it said.

First, there is the likely need for the government to re-allocate funds from not so urgent fiscal projects to fight the potential pandemic, it said. "However, improvement to infrastructure is also important to India's continued expansion," it added.

Swine flu scare is likely to weigh on wider economic activity, such as household consumption and business investment, it said.



Asset prices, it said are bound to retreat if the outbreak worsens and discourages investment. "Although India itself may not have upset investors, a general decline in confidence worldwide could spark repatriation of funds from stock markets," it said.

Swine flue affected sentiments in Indian stock markets as the BSE benchmark Sensex shed 370.1 points on Tuesday.

A general decline in confidence worldwide owing to swine flu will not only be a drag on stock prices in India, but will also exert downward pressure on the rupee, Moody's said.

"The Indian unit has traded between 50 dollars and 52 dollars for much the past two months. Amid still-fragile investor sentiment, although a net capital inflow into equities occurred in April, another round of net outflow cannot be ruled out," it said.

On the impact of expenses on medical care for swine flu on fiscal deficit, Moody's said, "The global swine flu outbreak is a major concern to the cash-strapped Indian government. Expenses on preventive measures - or medical treatment when needed - will further weigh on India's fiscal deficit," it said.

Public debt is already equivalent to 80 per cent of the GDP and more borrowing will hurt India's fiscal profile, it said.

Although most of the governments around the world are unlikely to divert funds from their fiscal stimulus packages to tackle this potential pandemic, this may be the only option for the Indian government, it said.