Don’t Worry, We Are At Better Footing To Face Tapering: Govt

Markets are again in a sea saw mode on the concern of drastic impact of tapering on the Indian economy as it happened in last July-August. Again on Thursday as markets nose-dived and BSE Sensex shed around 250 points in the opening session, finance ministry flung into action to appease the investors and markets. In a hurriedly released statement ministry said; “Decision of US Federal Reserve to reduce the level of security purchase was expected and should not in any way surprise or affect the Indian markets. However, it may be noted that USD 65 billion is not a small sum and will continue to infuse a large amount of liquidity into the world markets.”

Ministry is of the view that this time Indian economy is better placed to face the consequences of tapering. The reasons that ministry showcased to augment its confidence are the robust foreign exchange inflow that resulted in building USD 295 billion reserve, continuous strong inflow in the form of FDI and FII, comfortable level of liquidity and strong regulations of capital markets. Also government has tried to put forward the fact of containment of Current Account Deficit (CAD) to less than USD 50 billion in the current fiscal as a big positive for the economy. Ministry has pointed out that investment cycle appears to have turned positive, credit demand from key sectors is strong and WPI inflation has moderated, therefore, there should be no undue concern over external factors. 

Actually finance ministry is deriving optimism from the fact that Federal Reserve is expecting that the federal fund rate of 0-1/4% would continue for some more time till unemployment rate is above 6.5%. This will certainly make Indian markets a good opportunity to invest. Also till now Federal Reserve hasn’t indicated any sequential tapering that provides a sense of relief. Despite government’s confidence, how resilient Indian economy would be from the impact of tapering will be known only in coming days. Government is saying that, along with the RBI it will remain vigilant about the tapering and will take all necessary steps to provide stability in financial markets.