Chidambaram, Nath say the economy is strong enough to withstand the global crisis.
In a strong hint that more steps are in the offing to ease the domestic liquidity crunch, Finance Minister P Chidambaram today promised to swiftly respond to the needs of the market.
“Steps will be taken to infuse more liquidity, if required,” Chidambaram said at a late evening briefing after a meeting of the Union Cabinet chaired by Prime Minister Manmohan Singh took stock of the emerging global financial situation and its consequences for India.
Emerging mid-way from the meeting, Chidambaram said the Indian authorities had enough instruments to ensure the stability of the country’s financial system. “We will continue to provide credit and other support for the growth of the economy”, he said.
The Cabinet met for the second time in a week to discuss the ongoing global financial crisis and its impact on India.
In response to a question on the recent easing of restrictions on investment via participatory notes, Chidambaram said: “There is a time to impose restrictions, there is a time to remove restrictions. Last October, the problem was huge capital inflows and a large number of unregistered FIIs and unregistered sub-accounts. Today, nearly 400 new FIIs have registered; over 1,000 sub-accounts have also been registered. So the situation has changed”, he said. He added the problem faced by the Indian system was one of “encouraging more inflows” and not exporting the market to Singapore.
The Cabinet meeting came after the government stepped up efforts to calm nervous investors and boost confidence in the Indian economy. Earlier during the day, Commerce Minister Kamal Nath said the Indian economy had strong fundamentals and Planning Commission Deputy Chairman Montek Singh Ahluwalia said inflation had softened and would come down to high single digits in a couple of months.
Earlier during the day, Chidambaram said further measures to infuse liquidity in the market would be taken, if required. “Everybody in the world is doing it. We are not affected to the same extent (by the global financial crisis), but to the extent there is shortage of liquidity in the Indian market, we will provide liquidity. I am hopeful investors will start coming to the market”.
| CHIDAMBARAM QUOTES |
| * Our exposure to the sub-prime mortgage crisis is almost negligible |
| * The world is round. Action taken in one part of the world will impact the rest of it. I'm sure our (RBI) governor is in touch with governors of other central banks |
| * What is happening in the stock market is not a reflection of the liquidity situation. Stock market is driven by sentiments |
| * Inflation continues to be a priority. At the moment, liquidity is the primary issue |
| * Rupee will find an appropriate level |
| * India will grow 8 per cent this year, making it the second-fastest growing economy in the world |
| * India will grow at double the average growth rate of the world |
Chidambaram added that the fundamentals of the economy were strong.
Earlier this week, he had said he expected the economy to grow 8 per cent this fiscal and 9 per cent in 2009-10. However, other forecasts say the growth rate will ease to 7.5-8 per cent this fiscal.
Echoing Chidambaram, Nath said India had strong fundamentals to tide over the global financial crisis. “Our regulatory mechanism for the financial system should be a model for the world. We have no bubbles to burst. Indeed, FIIs are pulling out money but much of this is a frenzy effect and has nothing to do with the fundamentals of our economy”, he said. “In the United States, it is a question of return of investments while in India every one is talking of return on investments.
