Pranab promises fast-track reforms

The government on Monday assured investors it would expeditiously work on pending reforms. It said the India story had not been hampered in any way by the developments across global markets.

The Reserve Bank also said the banking system did not face any liquidity pressures and its priority was to ensure that adequate rupee and forex liquidity were maintained in the domestic markets to prevent volatility in interest rates and exchange rates (For detailed RBI statement, see report on page 6).

“The government will fast-track the implementation of the pending reforms and keep a close eye on international developments,” Finance Minister Pranab Mukherjee told reporters here. Admitting the developments in the US and the euro zone could have some impact on India’s economy, he said the government would encourage greater consumption and drive domestic growth. “India’s growth story is intact and its fundamentals are strong,” he said.

Mukherjee said there could be a temporary capital outflow, but things would improve as India offered better returns on investment.

“There could be some impact on the capital and trade flows in the country... We could notice FIIs seeing India as an attractive investment destination even if there is any temporary outflow,” he said. “We could rather see faster and greater FII inflows, unlike after 2008, in view of the higher returns that global investors could get in India.”

Planning Commission deputy chairman Montek Singh Ahluwalia said the US downgrade was an important event. “So, the market reaction is natural.” He said India did not have a US-like situation. “Though we have high debt, our growth is much higher, which compensates for that. In overall terms, India’s debt-to-GDP ratio will go down in the next five to six years.”

Chief economic advisor Kaushik Basu said the slump in the stock market was a panic reaction. “Right now, we don’t need any special measures... Should the need arise, the government and the central bank are in a position to step in... But barring the immediate reaction to what is happening now, the India story remains robust,” Basu said.

The Prime Minister’s Economic Advisory Council Chairman C Rangarajan, however, said developments in the US economy would negatively impact exports and moderate capital flows into the country.