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16/06/2012 17:05:00

UPDATE: Indian Policy Makers Fret Over Europe's Troubles, Greece's Fate

--Situation in Europe is of particular concern, Indian prime minister says

--Concerns over Greece's fate in the euro zone, Indian finance minister says

--Rupee's depreciation closely linked to euro-zone crisis, finance minister says

(Rewrites first paragraph, incorporates comments from Indian finance minister starting in eight paragraph)

By Khushita Vasant

MUMBAI--Indian policy makers Saturday worried about the frail financial health of the euro zone, particularly expressing anxiety over Greece's fate in the currency bloc a day before the country goes to the polls.

Indian Prime Minister Manmohan Singh said continuing economic problems in the region could hurt India's growth, which has already slowed to a worrisome level.

"Europe accounts for a significant share of the global economy and is also India's major trade and investment partner," Mr. Singh said in a statement before leaving for a Group of 20 summit in Mexico.

G-20 finance ministers and central bankers are meeting in the shadow of a troubled Europe and faltering global economy.

Europe faces a momentous Greek election Sunday. Governments and central banks around the world are bracing themselves with contingency plans for the prospect that Greece could leave the currency union following Sunday's vote.

Greece's election results will come the night before the summit begins, and is expected to weigh on discussions.

"It is our hope that European leaders will take resolute action to resolve the financial problems facing them," Mr. Singh said.

Separately, India's finance minister Pranab Mukherjee said the domestic economy is passing through a difficult time. While the south Asian nation struggles with macro-economic problems of its own, it is equally buffeted by global headwinds.

Mr. Mukherjee said there is trepidation over Greece's fate in the euro zone--its ouster from the bloc could further weigh on risk-sensitive emerging economies like India.

The turmoil has hit the Indian rupee, which depreciated nearly 19% against the U.S. dollar over the past 12 months.

"I am aware of the fact that there has been devaluation and uncertainty over the rupee, which is closely linked with the euro-zone crisis. It is a matter of concern," Mr. Mukherjee said in a speech at an event.

But, India's economic troubles don't end there.

A weakening rupee pushes inflation higher, while other trouble spots--bloated deficits on the budget and current account--further cloud the economic outlook.

Meanwhile, exporters must take advantage of a weakening rupee, even though Europe--a key export market--shows tepid demand, Mr. Mukherjee said. "In the context of the current account deficit and going by slow exports growth, this clearly demands that we must diversify our export destination and also our export basket."

Mr. Mukherjee said he is confident the Reserve Bank of India will keep these in mind and "adjust" its monetary policy.

India's sputtering gross domestic product and factory output growth have led to a clamor for monetary easing.

The central bank meets Monday for its rate-setting meeting.

Write to Khushita Vasant at khushita.vasant@dowjones.com

(END) Dow Jones Newswires

June 16, 2012 11:05 ET (15:05 GMT)

Copyright (c) 2012 Dow Jones & Company, Inc.

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