The government on Monday allayed investors’ fears in the wake of the stock market’s sensational plunge, saying India’s economy was fundamentally strong and poised for robust growth in coming years.
“The fundamentals in the economy are quite strong. Today’s market fall reflects the continuing uncertainties in the global economy and not any change in the fundamentals of the Indian economy,” the finance ministry said.
“Investors should take informed and responsible decisions in the situation and not be led by market rumours or any unwarranted apprehensions,” it said in a statement.
It said all parameters, including corporate profits, tax collection and credit offtake, indicated high growth prospects. The statement came after BSE Sensex fell by 1,408.35 points, or 7.41 per cent, on Monday.
Economists feel India’s merchandise and services exports could feel the pinch of weak domestic demand in the US as the world’s largest economy grapples to stimulate growth in the wake of a severe asset-bubble crisis.
“The most immediate concern arising out of a recession in the US would be that of a sharply appreciating rupee. This would affect merchandise exports and income under ‘invisible’ trade could see a fall,” said T. K. Bhaumik, chief economist, Reliance Industries Limited.
The rupee has appreciated by about 12 per cent in 2007, forcing the government to offer fiscal sops to affected sectors such as handicrafts and textiles.
“A further cut in the Fed rate would mean that investors would move out of the US and into countries such as India,” Bhaumik said.
Chief executive officer of the Indian Council for Research on International Economic Relations (Icrier) Rajeev Kumar echoed a similar opinion. “A recession in the US would mean India’s merchandise exports would be lower. There could also be more capital coming into Indian stock markets in case of a Fed rate cut,” Kumar said.