Indian economy capable to weather storm: Chidambaram (Lead)

October 9th, 2008 - 12:10 am ICT by IANS  

Manmohan SinghNew Delhi, Oct 8 (IANS) The Indian government Wednesday night reviewed the situation arising out of the global financial crisis even as Finance Minister P. Chidambaram sought to allay investors’ fears and said the Indian economy has the capacity to weather the storm.Prime Minister Manmohan Singh chaired an extended meeting of the cabinet, where Chidambaram briefed other senior ministers about the current financial scenario at the global level.

“The US and many countries in Europe are passing through a severe financial crisis,” Chidambaram told reporters later, reading out a two-page statement adopted in the meeting.

“The ripple effects of this crisis are being felt in other countries, including India. The authorities in the US and Europe have taken a number of bold and unconventional steps in order to stabilise the financial situation. We hope that their efforts will succeed,” said the statement.

Underlining that the fundamentals of Indian economy are strong, he said: “In the first quarter of 2008-09, the growth of GDP was 7.9 percent. On current trends, we expect that the growth rate for the whole year will be close to eight percent.

“There are many indicators which underline the sound fundamentals of the Indian economy. For example, during April-August, 2008, exports have increased, in dollar terms, by 35.1 percent and imports have increased, in dollar terms, by 37.7 percent. Many sectors have shown impressive growth. There is ample evidence that cumulative investments in the pipeline continue to be high. Huge capacities are being added in a number of sectors including power, steel, oil and automobiles.

The cabinet statement noted: “We are conscious of the fact that liquidity conditions in India too have tightened in the last few weeks. Our authorities have responded to the situation. The Reserve Bank of India (RBI) has taken steps to infuse more liquidity into the market. We will watch the situation carefully and continuously, and respond swiftly to the needs of the market. Steps will be taken to infuse more liquidity, if required.”

Responding to media queries, Chidambaram said the government was closely and carefully monitoring the situation, and allayed the fear of investors. “The Indian economy was premised on strong fundamentals,” he said.

“We are prepared to respond swiftly to any situation,” he said, adding that India’s central bank RBI was in touch with its global counterparts.

RBI Tuesday cut the cash reserve ratio (CRR) - the minimum balance a bank has to maintain as percentage of its deposits - by 50 basis points to 8.50 percent to ensure the availability of adequate liquidity in the market.

“Maintaining the liquidity flow is a larger issue,” Chidambaram said, while admitting that controlling inflation, which was at 11.99 percent for the week ended Sep 20, was still a high priority of the government.

Chidambaram said investors should not fear about the safety of their investments, “as these are safe”.

“What is, however, required or advisable is they should take informed decisions. It is true sentiments are low today. Rupee will appreciate. Fundamentals of our economy are very strong,” he said.

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