India better prepared to deal with US tapering: FM

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SME Times News Bureau | 19 Dec, 2013
Union Finance Minister P. Chidambaram Thursday said the country is better prepared now to deal with any situation arising out of the US Federal Reserve's decision to slash US bond purchases and the markets have already factored in the impact arising out of such a decision.

"The government is of the view that the markets had already factored in the US Federal Reserve's decision and, therefore, are not likely to be surprised by these moderate changes. Besides, we are better prepared than in May 2013 to deal with the consequences, if any, of the US Federal Reserve's decisions," the finance minister said in a statement here.

He said the government has taken note of the statement issued by the US Federal Reserve on the 'taper'. "This morning, I spoke to Raghuram Rajan, Governor, RBI."

The US Federal Reserve has announced that it will continue to purchase securities at the rate of $75 billion per month, as against the earlier level of $85 billion per month.

Even the industry bodies feel that India is better prepared to embrace this decision. "India is now definitely in a better position to manage its balance of payments as the government and RBI has taken effective steps to build up forex reserves and render stability to the foreign exchange market," said FICCI president Naina Lal Kidwai.

"This is a mild reduction, and the US Federal Reserve has not announced any sequential reduction," Chidambaram said.

The minister said the US Federal Reserve will "continue its purchases of treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labour market has improved substantially in a context of price stability."

"We do not expect the tapering to really cause any big disruptions in India's external sector and the Rupee is expected to remain range bound. The position with regard to current account deficit (CAD) is quite stable and is likely to remain so," said Assocham secretary general D.S. Rawat.

The positive side to the tapering phenomenon is that the US economy is improving which will improve potential for exports to the American markets. It would give a fillip to the export sector which in turn would mean further improvement in CAD, he added.