Finance ministry plays it cool but relief shows in North Block

Jalan says Fed move gives India time to take steps to boost growth; focus shifts to RBI monetary policy

Finance ministry officials were on Thursday impassive, unlike the stock markets, over the US Federal Reserve's decision to continue its massive stimulus. Yet, the undertone of relief was palpable.

The ministry was prepared to handle the situation in case the US central bank had decided to stop or reduce its $85-billion monthly bond buying programme, was the official view.

Asked to comment on the Fed's decision, Finance Minister P Chidambaram did not oblige reporters. But Economic Affairs Secretary Arvind Mayaram did. "We should not overly put emphasis on the decisions of the Fed in the manner in which the economy will unfold...It is business as usual, as far as we are concerned."

The approach of the ministry, at least officially, was that investors should look at the fundamentals of the economy and not at one decision of the US central bank.

Mayaram said, "I think we will need to continue to deepen our own reform process, so that we continue to strengthen the economy. We believe with the steps the government has taken, the economy will continue to show signs of growth and that is what is going to strengthen the rupee and strengthen the markets."

Yet, some of his comments indicated what could have gone on behind closed doors. "It would have been good if there was some kind of policy guidance (from the Fed), so that there was certainty as to how the taper will happen. But, nevertheless, we believe what we are doing is right."

An official in the finance ministry did not hide his jubilation. "It was a big, big surprise," he said. "Now, investors are not jittery over the uncertainty relating to tapering and the government gets time to do all that is required to boost growth. The task ahead is to make that happen."

The Fed had on Wednesday surprised the markets by continuing with its bond buying programme, for want of solid evidence about growth recovery. The markets were worried that a rollback or reduction in the programme would make foreign money scarce.

"We have to plan in our interests," said Financial Services Secretary Rajiv Takru. "And, we were ready for any kind of a decision. We are happy; I think we were ready for both."

However, the underlying tone seemed apparent. An official said he did not want to say too much but was happy with the Fed decision. "By the time the Fed starts tapering, our economy would recover and we would be in a better position to manage it."

Former Reserve Bank of India (RBI) governor Bimal Jalan said the Fed decision had brought India time. "I am glad. It was a surprise. He (Fed chief Ben Bernanke) has done it. You can't keep on pumping money. No country can. Tapering will happen. But it gives us time to do what we want to do," Jalan, also an ex-chief economic advisor, told reporters after meeting some ministry officials in North Block.

The economy would be better prepared for tapering, he said. "Now we are not dependent on what the Fed does, we are only dependent on what RBI does."

RBI is to announce its mid-quarter monetary policy review on Friday. Jalan, RBI governor between 1997 and 2003, said he did not want to speculate on what he thinks new RBI governor Raghuram Rajan would do but said the Fed's decision was bound to be considered by the central bank. "It does not require any experience with the Reserve Bank to know that if something like this happens, it would be factored in.

On whether RBI can change its monetary stance to control inflation, he said it can always do something. "There is always a trade-off. You have to choose what needs special attention this time. You have all the figures."