Seeking to calm turbulent markets following Brexit, government and RBI today said India’s sound macro economic fundamentals backed by planned structural reforms and firewalls will help it weather any major fallout of UK’s leaving the European Union.
Finance Minister Arun Jaitley said impact on financial markets should not last beyond a few days and vowed to steadfastly pursue growth-oriented reforms agenda including early passage of GST Bill, while RBI Governor Raghuram Rajan promised to provide liquidity and correct any disorderly market behaviour.
India has enough resilience to withstand medium to long term impact and is well prepared to deal with any volatility, they concurred.
Rajan said investments should return after initial investor worries over Brexit and pledged to inject liquidity in dollars and rupees, as needed.
Economic Affairs Secretary Shaktikanta Das asserted that India has the firepower to withstand impact of Britain’s exit from the EU and did not expect foreign trade to suffer.
“Our macro-economic fundamentals are sound with a very comfortable external position, a rock-solid commitment to fiscal discipline, and declining inflation,” Jaitley said in a statement. “We are well prepared to deal with short and medium term consequences of Brexit.”
The Indian economy has good fundamentals, low short-term external debt and sizeable foreign reserves, Rajan said, adding that these factors should stand the country in “good stead in the days to come”.
He saw no major foreign selling as India was better placed than other economies.
In line with global markets following UK’s exit from EU, BSE Sensex tanked nearly 1,100 points before regaining some ground - still closing 605 points down at 26,397.71, while the rupee fell below the Rs 68 mark against the US dollar. Gold, considered a safe-haven investment, soared however to 26-month high in the bullion market here.
Jaitley, who is on a five-day visit to China, said in Beijing that the UK vote will have transient impact on India, not lasting beyond few days. “It then settles down.”
“Now instead of one entity (the combined European Union) we have to deal with two (EU and UK),” he said.
“At the same time, for the medium-term, we will steadfastly pursue our ambitious reform agenda — including early passage of the GST (goods service tax) that will help us realise our medium term growth potential of 8-9 per cent,” Jaitley added.
Chief Economic Adviser Arvind Subramanian said he saw “silver lining” of a decline in oil prices and likelihood of a rate hike delay in the US due to the UK vote.