New Delhi: The Government is watching the global financial crisis closely and will react swiftly to the needs of the market and steps would be taken to pump in cash if required, said Finance Minister P Chidambaram on Wednesday.
"We wish to assure the people of India that the Indian economy has the capacity and the resilience to weather the storm that is blowing across the world," Chidambaram said after a meeting of the Union cabinet to review the economic situation.
"We have enough instruments to ensure the stability of the Indian financial system and we will continue to provide credit and other support for the growth of the Indian economy," he said reading out a two-page statement adopted in the Cabinet meeting.
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 per cent. On current trends, we expect that the growth rate for the whole year will be close to eight per cent.
"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 per cent and imports have increased, in dollar terms, by 37.7 per cent.
“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.”
Against the backdrop of financial giants collapsing in the West, the Finance Minister said: "our banks have strong balance sheets. They are well capitalised. The capital adequacy ratio of each of our banks is well above Basel norms and above the norms stipulated by the RBI.
Besides, they are well regulated, and this has been universally acknowledged. Our banks have shown great resilience and continue to provide credit to all sectors of the economy. No one need have any fear about the soundness of India's banking system. Deposits in banks are safe”
"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.
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Chidambaram was confident that the stock market crash on Wednesday was not reflective of the economy. "What is happening in the stock market is not exactly the reflection of the liquidity conditions. The stock market is driven by the sentiments and when we are talking about the stock market, we are talking about 30 or 50 stocks which make up the index in the BSE and NSE," he said on a day the sensitive index of the Bombay Stock Exchange fell to its lowest level in over two years.Inflation fight first
Chidambaram said the global financial crisis hadn’t distracted the Government from fighting inflation. "Inflation control is still a very high priority. There is equally important priority of maintaining stability of the Indian financial system. Keeping both priorities in mind, we will take steps."
Asked about the sharp depreciation in the value of the Rupee, Chidambaram said there are many factors responsible for it.
"Rupee was at this level a few years ago. It will find its appropriate level," he said.
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.
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