Rupee falls, markets crash but policymakers talk brave

New Delhi: Key Indian policymakers, including Finance Minister P Chidambaram and Commerce and Industry Minister Kamal Nath, on Wednesday said all was well with the economy but for some liquidity issues, even as the rupee dived to a six-year low and stocks crashed.

"Indians should feel confident about the fact that India is a growing economy," the finance minister told reporters here, as the sensitive index of the Bombay Stock Exchange fell to its lowest level in over two years.

"If need be, we will take further measures to infuse liquidity in the market," he said, referring to complaints by the corporate sector that they were not getting enough funds to run their businesses.

"There is a liquidity problem. But we will address the liquidity issue. The RBI (Reserve Bank of India) Governor is already on record. If necessary, he will take further measures to infuse liquidity," Chidambaram told reporters outside North Block, the seat of the country's finance ministry.

His comments came even as a key Indian stock market index took an intra-day dive of over 900 points, while the rupee fell to its lowest level in six years to over Rs.48 to a dollar.

The finance minister also complimented the regulators, referring to the 50 basis points cut in the minimum cash balance against deposits for commercial banks and the removal of some curbs on foreign funds operating in India.

“We are not affected to the same extent (by the crisis in the global financial system). But to the extent there is liquidity shortage in the Indian market, we will provide that liquidity."

The finance minister's comments came even as Planning Commission Deputy Chairman Montek Singh Ahluwalia maintained that the current turmoil in the Indian stock markets was part of the global crisis.

"There is nothing to worry about,” he said, while unveiling a new Internet site of the plan panel. “We have to wait and watch if the US bailout plan succeeds," Ahluwalia, who met Chidambaram earlier in the day, said.

Ahluwalia, who has worked with the World Bank in the past and was India's finance secretary in the early 1990s, was optimistic on the price front that had pushed India's annual inflation to over 12 per cent last month.

"Inflation has softened and the price graph is flat. I hope that inflation will come down to high single-digits in a couple of months,” he said.

Commerce minister Kamal Nath, in an interaction with reporters at his office, said India with its strong economic fundamentals could tide over the current global financial crisis.

He said the country received foreign direct investments (FDI) worth $2.25 billion and $2.32 billion in July and August respectively.

“The huge growth in FDI in India despite global economic slowdown shows how sound and resilient our economy is,” Kamal Nath said, adding there was nothing to worry at all.

“In August, FDI growth was 124 per cent and 219 per cent in July this fiscal, which is an indicator to the fact that India with its strong fundamentals can tide over global financial crisis,” he said.

Referring to inflation, which was 11.99 per cent for the week ended Sep 20, the minister said it is easing and would continue to moderate.