US Shutdown

Starting this month, US government has closed all non-essential government offices, after Congress failed to strike a deal on US government spending on Obamacare and increase in debt ceiling.

US congress has entered into a deadlock where the republican senate is not approving the increase in debt ceiling from its current $16.7 Trillion. US government is set on the path of default on its bond on 17th October. If it happens, financial market will collapse. We can see recession of 2008 or even worse.

US government bond is considered risk free. Not for a single time in its history, have they defaulted on it. It being so risk less gives them the power to pay less interest as compared to other options available for investment in market. With the upcoming default, investors will ask for more interest from government. As a result of which government will come under a lot of debt.

Deadlock is because republicans are asking to remove spending on Obamacare. Obamacare is nation wide medical insurance policy started by President Obama three years ago. He believes that it's important for country, as it is benefiting a lot of people for whom medical facilities were out of reach before.

Impact of Shutdown on Indian Economy  

US Shutdown is not an independent event. It brings with itself a lot of connected issues. Countries which are doing trade with US will directly get impacted because of it. We Live in a globalized economy where our own economy is not only a function of our activities, but is equally dependent on things happening outside our world. US economy being the most powerful, controls most of the economic activity happening in the world.

As stated in Indian Express, commercial ports do not come in emergency service category, so there will be delays in port services like clearing of goods from port due to staff shortage. This will have a bad impact on Indian exporters who at present send out almost $ 36 Billion worth of goods and services to USA. Also Exporters are not able to benefit from current depreciation of INR.

US shutdown would also result in slow visa processing by immigration department. This would pose threat for IT companies which sends out a lot of employee to work on onsite 

Direct financial impact of US shutdown would be the sudden rise in interest rates of US government bond. This will result in flow of money out from EM (Emerging Markets) into the developed market. The trailer of which was observed when US treasury announced tapering in bond purchase. The result was sudden jump of 200 basis points in short term interest rates in US. A result of which was a huge outflow of money from EM's. This resulted in catastrophic depreciation of currencies of EM's with Indian currency the most affected.