Surprised at sharp correction in markets: Arvind Mayaram

Arvind Mayaram, Economic Affairs Secretary, says Government of India doesn't intend to impose capital controls

Arvind Mayaram, Economic Affairs Secretary, Government of India, today said that GoI believes that it is business as usual and he is surprised at the sharp reaction seen in markets. 

 

Mayaram was talking to the media on a conference call. He attributed the panic reaction to external factors affecting markets and internal reaction to the belief that the government will not be able to maintain Current Account Deficit (CAD). 

 

Government of India doesn't intend to impose capital controls, he said. 

 

Commenting on the recent restrictions imposed on gold, Mayaram said, that amount of gold imports have been brought down only on the automatic route to be repatriated abroad. 

 

"Large population of India uses gold as a savings instrument. Anyone in genuine need will be galdly allowed by the RBI to invest abroad," he said. 

 

He said, we are not in the kind of crisis where we don't have reserves. "We are getting $11 bln as against the requirements of $6 bln to finance CAD. Issuing sovereign bonds and NRI bonds will create further unwarranted panic".  

 

We have done our arithmatic, Mayaram says. We are confident of limiting CAD at 3.7%, confident that growth will be more than 5.5%.

 

We will see in next 2-3 months, foreign exchange starting to come in. Additional foreign exchange will come to quasi-sovereign bonds, he said. He also added that last 15 days' FII flow numbers show that FIIs have faith in Indian economy, he said.

 

However, he said, Power Finance Corporations need to borrow Rs 40,000 crore as its lending book is already full. 

 

"If need be we will look at additional measures for capital flows into the country". 

"If need be we will look at additional measures for capital flows into the country," he said. 

 

We are monitoring expenditure on a month-to-month basis, Mayaram said. "We are much better off this year than the last year".

 

"He said, "We will be able to manage the fiscal deficit aspect as it is dependent on the govt expenditure. However, he said, managing CAD is a little more complicated.

 

"We are very confident of managing fiscal deficit as we will cut down expense whenever needed, he said. 

 

In a political scenario like this it is very difficult to cut down govt expense, but we did it, says Mayaram. Sucking out liquidity became important because of the speculative trading in the rupee. Idea was to increase the short-end rates so that the arbitrage opportunity goes down," he said.

 

However, now we are seeing some spillover on the long-end side, Mayaram told reporters. 

 

Now RBI has indicated that it will taper off the CMB purchases. 

We don't intend to exceed the market borrowing programme, Mayaram said. 

Moving onto labour concerns, Mayaram said, "The government's expenditure on NREGA is coming down from Rs 40,000 crore earlier to about Rs 26,000 crore. This shows that fewer people are going into NREGA."

 

"Thus, the assumption that labour is not available is wrong. Labour is available and is also now coming back into more productive areas of the economy."