The Dubai debt crisis may cause significant damage to exports, remittances and real estate sectors in India, besides resulting in build up of asset bubbles in Asia, HDFC Bank said on Wednesday.
"The ongoing crisis in Dubai will impact specific pockets of the domestic economy and what may seem negligible at an international level may translate to significant damage for specific segments of the economy," the bank said in a research report.
The crisis surfaced when Dubai Government's holding company - Dubai World - asked for a standstill till May to repay its $60 billion debt.
The likelihood of a sovereign default may also pose risks of asset bubbles building up in Asia, China in particular, and may also act as a wake up call to financial markets, the leading private lender stated.
Following the crisis, Reserve Bank had asked Indian banks to give an account of their exposure to Dubai, a key financial hub where lakhs of Indians work.
Dubai economy accounts for roughly one third of UAE's GDP and this could mean that a little over 3 per cent of India's total exports could be at risk, post-crisis, it said.
India's key exports to the UAE include gems and jewellery, petroleum products, metals, machinery and basmati rice.
The crisis, which surfaced last week, may also impact bullion trading in Dubai, given the fact that $29 billion of gold from India is being traded in Dubai's bullion market, it said.
Besides, India may see an impact on remittances, as Gulf accounts for roughly one third of total remittances
into the country, the report noted.
Of the total remittances, UAE accounts for 10-12 per cent of the total private transfers to India. At present, remittances comprise close to 3 per cent of India's GDP.
"While we are already expecting a decline in private transfers this year, Dubai's debt crisis means that private transfers could come under additional pressure and impact states in the South such as Kerala," HDFC Bank observed.
The report said given the exposure of Indian and UAE developers, the real estate sector in India may also face
issues following the debt crisis.
The crisis has proved that Dubai Government's support to the private sector in the Gulf country in inadequate, the
report said.
"The most obvious implication of last week's event is that the implicit support extended to private sector debt by Dubai and Abu Dhabi cannot be taken for granted anymore," it said.
