India may escape the worst consequences of the global financial crisis due to its

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strong internal drivers for growth but money, debt and credit markets may be impacted indirectly. This was stated by Reserve Bank of India governor Duvvuri Subbarao.

Subbarao told the International Monetary Fund in Washington on Saturday that he welcomed coordination among developed economies to manage the crisis, but implications of such management on emerging economies should be explicitly factored in.

“Second, emerging and developing economies should be taken into confidence and consulted whenever the policies and actions of the developed countries have implications for them,” he said.

The IMF warned on Saturday the world’s financial system was near meltdown and France promised a meeting of European leaders in Paris would detail measures to keep a market panic from triggering the most severe global downturn in decades.

Subbarao said equity and forex markets provided the channels through which the global crisis spread to the Indian system, which in turn had an indirect impact on the money, debt and the credit markets.

“India, with its strong internal drivers for growth, may escape the worst consequences of the global financial crisis,” he said.

Overnight Indian interbank interest rates jumped to a 19-month high of 23 per cent on Friday, more than double the

central bank’s own short-term lending rate of 9.0 per cent.

The RBI has been injecting record sums into the money market, which has frozen as the global financial crisis spread.

On Friday, the central bank said it would make a deeper-than-expected 150 basis point cut in banks’ cash reserve requirements on Saturday, to release Rs 600 billion into the system.

It had initially said the cut would be just 50 basis points.

“Risk aversion, deleveraging and frozen money markets have not only raised the cost of funds for Indian corporates but also its availability in the international markets,” Subbarao said.

This would mean more demand for domestic bank loans, and reduced investor interest in emerging economies could impact capital flows significantly, he said.

Subbarao said Indian banks had very limited exposure to the US mortgage market and to the failed and stressed financial institutions, directly or through derivatives.