Finance minister P Chidambaram on Thursday sought to assuage the stock market, after it declined by over 350 points, by asserting that there was no need for any "nervousness" and the participants should read the situation correctly rather than be influenced by external developments.
"...there is no need for any kind of nervousness. I am looking forward to June and the second quarter with much greater confidence. I think the Indian market should read the situation correctly rather than being influenced by something which is happening elsewhere", he said.
The minister was reacting to sudden crash in Indian stock markets in response to a statement by Federal Reserve chairman Ben Bernanke in which he had talked about scaling back of stimulus with improvement in economic conditions. The BSE Sensex slipped by 365 points to 19,697.44 points during the intra-day trade. The markets later recovered.
"We have been looking at what is happening in the market. We think that Bernanake's statement has been misunderstood or misinterpreted.
"If we read the statement carefully, he has clearly indicated that he will continue with quantitative easing in the foreseeable future at about $85 billion a month or so," Chidambaram said.
The minister further said that quantitative easing is continuing in Japan and Europe and there have been no change whatsoever and the flows into India during May have been copious.
Chidambaram said the economic situation in India has been improving with decline in wholesale and retail inflation.
"...agriculture and labour-based inflation have come down, core inflation has come down, WPI headline inflation is below 5%, CPI based inflation is coming down, inflows are copious and someone from the media told me that he is seeing more advertisement revenues in the last two weeks", the minister said.
Admitting that certain numbers coming out of China were disappointing and also the quantitative easing programme in Japan could run into problems, Chidambaram said, "These are factors that are peculiar to the China market and the Japan market (and) they have no relevance at all to the situation in India."
Later, talking to reporters, chief economic advisor Raghuram Rajan said: "I think Federal Reserve said yesterday there is no intent to end it (quantitative easing) early. My reading of (Bernanke's) statement is that they are going to continue. In that sense we will have to deal with consequences of quantitative easing when it comes." India, Rajan said, got $5 billion FII in May alone and has been able to finance Current Account Deficit (CAD) quite comfortably and "there is no panic based need for new measures."
As regards the value of rupee, Rajan said, "We are not the worst but we are also not the best either in terms of depreciation. We are watching the rupee, but I won't say it is out of sync with what is happening in other countries."
"Look at all other currencies, the Euro has also depreciated against the dollar. Actually Japanese yen has done more than the rupee", he added.
The rupee on Thursday declined by a hefty 37 paise to trade at a fresh six-month low of 55.83 in early trade at the Interbank Foreign Exchange market on sustained dollar demand and strengthening of the US currency overseas.