No reason to panic

with war looming large, indian stock markets and other money markets have taken a beating. but economists and bankers feel that there is no reason to panic.this is not a war in classical sense. as afghanistan does not have a direct bearing on the indian economy, bankers feel that india should not worry much. the net impact of the war would be inflationary, with increase in oil prices and depreciation of rupee.however, a factor of worry is impact of war on us economy, a major trading partner of india. but, it would not have any impact on the availability and prices of essential commodities and food grains. on the foodgrain front, india is not only self sufficient but its granaries are overflowing. however, interest rates have shown some sign of firming up. but bankers feel this is a temporary phenomena. the sudden rise in the interest rate in the call money market, which went up to 15 per cent on friday, was because of the rbi's aggressive open market operations to contain the rupee's depreciation. rbi sold dollars during the week which helped rupee stabilising around rs 48 per dollar but this led mopping up of indian currency from the system. the banks were borrowing on friday to maintain the statutory requirement with rbi. this pushed the call money rate. but, as the system is flush with liquidity, pnb gilt md arun kaul said with rbi's decision to infuse temporary liquidity through repurchase of government securities, the interest rates stabilised again at around 7 per cent. on rise in gold prices, a senior banker said this was because of sudden increase in the demand in the developed countries. but, he maintained that in the 21st century, gold has lost its lustre as a currency to hedge the economic risks of war. it may apply to afghanistan not because that it is going to be affected by the war but also because of total absence of semblance of modern economy. for india, gold could not be used as an instrument to shield against the economic vagaries of war. this development might help india in containing terrorism in j&k which was draining finances.