Finance Minister P Chidambaram said US, and European countries are facing severe financial crisis. "India is feeling the ripple effects of this crisis. Authorities in the US and Europe are taking bold steps to stabilise the crisis. We hope the steps taken by these authorities will be effective."
He said the fundamentals of the Indian economy are strong. He cautioned investors to take informed decisions and not act in haste and said that there is no reason for investors to panic. He said that the Indian economy grew at 7.9% in Q1 and he expects the growth to be at 8% for full year. He expects the investments in pipeline to continue to be high. “The FDI from April to August has been robust a USD 14.8 billion and the cumulative FDI pipeline is robust especially power, steel, oil, auto sectors. The main problem of financial crisis is liquidity. The Indian banking system is sound and we have enough levers to keep Indian economy stable.”
All our banks are well capitalised, bank capital is between 10% and 13.65% which is well above Basel norms. A report of the Centre for Monitoring Indian Economy, or CMIE, shows that accumulative investment is extremely high. Investment at the end of June 2008 is little over Rs 66 lakh crore as against Rs 44 lakh crore at the end of June 2007. In July, there has been further investment of Rs 2.18 lakh crore, with another Rs 1.33 lakh crore in August.
Chidambaram said that there are huge capacities being added across sectors. “We will continue to provide credit and other support to ensure growth. The RBI is closely watching the situation to take steps if required. Inflation control is still a very high priority. The stability of the Indian financial system is also a major priority. The RBI governor is in touch with other bankers and will take necessary steps.”
He said that the Indian exposure to the sub prime and mortgage market is virtually nil. “The fundamentals of the Indian economic strong sentiment are weak, but it will revive. The rupee is under pressure due to the slowdown of dollar inflows. The Govt, RBI and SEBI are taking steps to revive FII inflows. Relaxing of the P-note norms will encourage inflows. The rupee will find an appropriate level. The Current account and trade account deficit is comfortable for the economy to grow at 7.9%. The Indian economy will grow close to 8%.”
Indirect tax collections are over target, at little over 14%. Personal income tax collection has grown by 23.4%, corporate tax collection has grown by 35.3%, and customs revenues for September are higher than their average for April-August. The Ministry of Commerce reported that they are counting on some late returns. Exports in dollar terms have risen by 35.1% in April-August; while imports have risen by 37.7%.
Many sectors like coal, mining, automobiles, chemicals, and chemical products have shown impressive growth rates. The construction sector has grown by 11.4%. Railway revenue earning traffic has increased 9.4%.
These are investment intensions that have been announced and firmed up and the pipeline investment is there. So, by and large everybody must be confident about Indian economy going forward. I have no advice to investors. It is for them to take decisions but my firm opinion is that fundamentals of Indian economy are still strong; the economy is still humming with activity. As far as depositors are concerned, there is nothing to worry. Our banks are well capitalised and well regulated. Everybody in the world accepts the fact that our banks are well capitalised.
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