Economy is strong: FM

The government swung into action on Wednesday to soothe frayed nerves even as the stock market saw another bout of volatility and central
banks in the US, UK, Canada and Europe cut interest rates to tackle the liquidity crisis. After a specially convened late evening Cabinet meeting, the government promised to “respond swiftly” to the spreading credit crisis and infuse more liquidity if needed. The government also assured that banks have strong balance sheets and that there was no need to worry about the safety of deposits.

Finance minister P Chidambaram came mid-way from the meeting to give a statement on behalf of the Cabinet “to assure the people that the economy has the capacity and resilience to weather the storm that is blowing across the world”. “We are conscious of the fact that liquidity conditions in India too have tightened. Our authorities have responded to the situation. RBI has taken steps to infuse more liquidity. 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 needed.”

It is because of this liquidity crisis that many financial institutions in the US and Europe suffered a meltdown and had to be bailed out by their governments and central banks, he added.

The Indian economy, on the other hand, is strong as evident from the first quarter gross domestic product (GDP) growth of 7.9%. “On current trends, we expect that the growth rate for the whole year will be close to 8%,” Mr Chidambaram read out from the statement. Investors should take informed decisions and not panic, he added.

The other indicators—trade data, foreign direct investment (FDI) flows—underlines the sound fundamentals of the economy, the Cabinet said. During April-August, exports rose 35.1% in dollar terms and imports 37.7%. “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. While there has been a negative trend in portfolio investments, foreign direct investment during April-August, 2008 has been robust. India attracted FDI of $ 14.8 billion, up by 114% compared to the corresponding period of last year,” Mr Chidambaram said.

Sorce: EconomicTimes