Finance minister Palaniappan Chidambaram on Thursday said the government would ?respond appropriately? through monetary and fiscal measures if the current global financial turmoil threatened to dampen India?s economic growth.
While the government was not in favour of imposing capital controls, the finance minister made it clear that, if the situation warranted, appropriate measures could be taken to ?moderate? certain kinds of capital inflows that were speculative in nature.
Addressing a press conference on the sidelines of the World Economic Forum Annual Meeting 2008, Chidambaram said monetary measures were within the purview of the Reserve Bank of India (RBI), which could take steps if and when required, and fiscal measures taken through the Budget.
?Our interest rates are set to contain inflation. But if it?s a dampener on growth, we will respond with monetary and fiscal measures. I can?t speak of the measures now,? the finance minister said. ?Of course, we have been affected by developments in the world financial markets and we are concerned about the volatility and turbulence,? he added.
The global business community, particularly at Davos, is keenly watching India, which together with China, is seen as one of the engines that will keep the world economy chugging along, even as key developed economies show signs of spiralling into a sharp slowdown or, at worst, recession.
The finance minister said it was ?likely? that as a result of the steep cut in interest rates by the US Federal Reserve and consequent widening of the interest rate differential between the US and India, there may be an increase in capital inflows.
Chidambaram said, ?At the moment, there is such deep uncertainty that investors are gripped by a sense of apprehension and that?s why they are selling. This, I think, will pass over in a few days.?
?The long-term effects of this crisis spreading from one market to another will have to be measured and responded to appropriately,? he added.
Chidambaram said India?s growth rate is cruising along at 8.5-8.6% for FY08 and the expectation for next year is close to 8.5%. Current growth estimates, he said, had factored in the global turmoil.
Reiterating the point that India was not in favour of imposing capital controls, Chidambaram said measures had been taken and would be taken to moderate the inflow of certain kinds of capital, if required. ?Some capital is speculative and, therefore, we would like to moderate those. There are a number of things we can do short of capital controls. What we will do or not do cannot be disclosed now,? he said. On the issue of sovereign funds, their regulation and transparency, Chidambaram said India had no plans to launch such a fund, as it did not have a fiscal surplus ?as yet.? Indian regulation, he said, required foreign government funds to register as such even if they come in as FIIs. ?We would like greater transparency on the ownership and objectives of these funds,? he said.
On the sub-theme of the Davos summit that India and China could end up as saviours of the turbulent world economy, the finance minister said the two countries were growing at a rapid pace and India?s self-interest lay in keeping the growth rate high. ?We have to do everything that needs to be done to maintain this growth rate.?