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The finance ministry on Friday said it had no intentions of imposing capital controls and the bloodbath in the equity and forex markets on Friday was because of the knee-jerk reaction by brokers and fears of QE (quantitative easing) withdrawal by the US Federal Reserve.
“We have taken a number of measures. Let us wait for what the first quarter growth numbers are,” Finance Minister P Chidambaram told reporters, adding the fundamentals of the economy had not changed. The finance minister said jobless claims in the US did not impact India and markets across the world had taken a hit.
“I have no doubt in my mind when calm is restored in the market, people would begin to understand that Indian market indicators must basically reflect Indian market conditions. They should not be sensitive to data coming out of the US. So, I think that is a time for calm. This is a time for reflection and let us see what happens next week,” he added.
Earlier in the day, other finance ministry officials tried to allay fears of the markets on measures taken by the Reserve Bank of India (RBI) last week on restricting dollar outflows under the automatic route.
“There is no intention of the government to create any capital controls. This concept is completely misplaced. There is no control on outflow of dividend, profits, royalties or any kind of commercial outflows which happen in the normal course. Non-essential outflows have been moved from the automatic route to the approval route,” Economic Affairs Secretary Arvind Mayaram told reporters.
He said the decline in currency and equity markets was mainly because of selling by brokers due to some confusion about the measures taken by the government and also on account of US job data fuelling fears that the Federal Reserve would start withdrawing its stimulus. But, it was incorrect to say that once QE stopped there would be no inflows in India, he pointed out.
“Today’s selling is not by institutional investors or mutual funds. It is a knee-jerk reaction by brokers,” he said, stressing that the stock markets in India seemed to be operating on sentiments.
The secretary said whenever required, policy initiatives would be taken with a view to create a stable environment for the rupee, but it didn’t mean the government had any intention of defending the rupee at any particular point. He added the government had done its numbers and was confident of controlling the current account deficit at 3.7 per cent of the gross domestic product. Another official said rupee depreciation could be arrested by choking money supply but that was not the intention of the government, as it would hurt growth. He said the measures taken by RBI could not be called capital control, as they had more to do with reducing stress on the balance sheets of corporates.
“What is seen in India is due to what is happening all over the world. The rupee worry also spills over to the equity markets and the equity worry spills over to the rupee. It is potentially vicious. The rupee will finally find a level based on the state of the economy,” added the official, who briefed media after the rupee touched a life-time low of 62.03 to a dollar in intraday trade.
The official also said there was no proposal to raise margin money for short selling of shares, as speculated in the markets.
