FM to discuss financial stability a day after polls

May discuss financial stability after elections

Finance Minister P Chidambaram will discuss economic stability with regulators a day after India casts its last vote for its next government.

Chairing his last meeting of the Financial Stability Development Council here on May 13, Chidambaram would reflect on the macroeconomic situation against the backdrop of the Lok Sabha elections.

The final round of polling will be over on May 12 and the results are scheduled to be announced on May 16. Opinion polls predict a comfortable majority for a Narendra Modi-led National Democratic Alliance (NDA) but a fractured verdict could adversely affect the economy and the stock markets that have rallied in anticipation.

May 12: Last phase of general elections
May 13: FSDC meeting in New Delhi
May 16: Counting of votes

KEY ISSUES

• Unexpected poll results may affect economic stability
• FSDC to discuss the situation and its impact  
• Regulators will prepare themselves for the worst
• Possible action being discussed to minimise negative impact

The 10th Financial Stability and Development Council (FSDC) meeting could assess possible scenarios after the election results are announced. Chidambaram said last week the recent spurt in stock prices was due to investors’ confidence about India’s economy and not because of a ‘Modi wave’. Finance ministry officials, who did not wish to be named, said a government with no clear mandate or defined development agenda could affect investor sentiment and the economy’s growth prospects.

“The thrust should be on building infrastructure, rationalising tax rates, minimising tax exemptions, phasing out subsidies and bringing in structural reforms. If no alliance gets enough numbers in Parliament, it will be a problem to move ahead with reforms,” an official said.

The meeting might also discuss implementation of the report of the Financial Sector Legislative Reforms Commission and the asset quality and capital adequacy of the banking system.

The FSDC meeting will be attended by Reserve Bank Governor Raghuram Rajan and regulators of the stock, insurance, pension and commodities markets, apart from senior finance ministry officials. The regulators would use the opportunity to bid farewell to Chidambaram, another official said.

Rajan is also scheduled to attend a meeting in Basel on May 10-11.

Chidambaram is expected to fly back to Chennai on May 14 to be present at the time of counting in Sivaganga, where his son, Karti, has replaced him as the Congress candidate.

The FSDC meeting on February 4 observed that though the deceleration in economic growth had been arrested in the second quarter of 2013-14, inflationary pressures and structural bottlenecks were issues of concern. The council assessed the effect of tapering US monetary stimulus on India.

Since its inception in 2010, the council has taken up initiatives to build India’s financial sector like the development of a corporate debt market, launch of infrastructure debt funds and issue of new rules for foreign portfolio investors.