India will continue to be in a state of full preparedness to deal with any eventuality due to volatility in global financial markets, the finance ministry said on Thursday after a meeting of the Financial Stability and Development Council (FSDC).
The FSDC, headed by finance minister Arun Jaitley, also deliberated on the issue of rising bank NPAs, corporate sector balance sheet stress and their impact impact on the bond market. Among others, the meeting was attended by Reserve Bank governor Raghuram Rajan, economic affairs secretary Shaktikanta Das, chief economic advisor Arvind Subramanian and other financial sector regulators.
The council noted that high volatility in the financial markets is one of the most prominent risks confronting emerging market economies. “However, India appeared to be much better placed today on the back of improvement in its macro-economic fundamentals and large forex reserves, which provides cushion against financial market volatility,” the ministry said in a statement.
Separately, Rajan said the RBI was on broad agreement on the composition of the proposed monetary policy committee, which would take decisions on policy rates. “We are on the same page (on MPC),” he said. According to sources, the MPC would be a six member panel with three representatives from RBI including the governor and three members would be appointed by the government. The RBI governor would have a casting vote.
The FSDC also took note of the recommendations of an inter-ministerial group, which identified gaps in the existing regulatory framework for deposit taking activities and suggested measures to address issues relating to deposit taking.