Dubai debt crisis rattles recovery

The Finance Ministry today said it did not expect the Dubai debt crisis to impact remittances to India, or affect the real estate sector in the country. RBI said it was studying the fallout of the developments, and would ask banks to furnish details of their exposure to Dubai World, the state investment company at the centre of the crisis.

The crisis spooked markets across Asia Friday. The Sensex sank over 600 points mid-session before recovering to end the day at 16,632.01, down 222.92 points. Hong Kong dived 4.8 per cent, and major indices in Tokyo, Taipei and Seoul fell over 3 per cent each. Late Friday night India time, however, European shares had closed higher and US stocks pared initial losses.

The Dubai government announced Wednesday that it was requesting creditors for a “standstill” on paying back until May 2010 some of the $60-billion debt of Dubai World and its real estate arm, Nakheel. The default request sent shockwaves through the financial world. Nakheel has a roughly $3.5 billion Islamic bond due in December.

In New Delhi, asked if Dubai’s ripples could reach India, Commerce and Industry Minister Anand Sharma said, “I don’t think... developments in real estate sector in Dubai are going to impact (India)... Besides, Indian real estate is doing well.”

Asked if Indian exports to West Asia could be impacted, Sharma told reporters, “I hope not.”

Also in Delhi, Finance Secretary Ashok Chawla said it was “somewhat unlikely” that remittances from the Gulf might be hit.