‘Forex reserves, firewalls to help weather storm’

‘Well prepared’ to deal with any volatility, says FM

THE GOVERNMENT and the RBI on Friday said India’s macro-economic fundamentals backed by structural reforms, record forex reserves and firewalls will help in weathering the Brexit storm. Forex reserves which are now at a record high of $363.8 billion will be an “immediate and medium term firewall,” the government said.

Stating that India is “well prepared” to deal with any volatility due to Brexit, finance minister Arun Jaitley said the impact on financial markets should not last beyond a few days and vowed to pursue growth-oriented reforms including early passage of GST Bill. “For the medium-term, we will steadfastly pursue our ambitious reform agenda including early passage of the GST Bill that will help us realise our medium term growth potential of 8-9 per cent,” Jaitley said. He said the Centre, the RBI and other regulators are “well prepared, and working closely together”.

Agreeing to Jaitley, RBI Governor Raghuram Rajan said: “The Indian economy has good fundamentals, low short-term external debt and sizeable forex reserves.”

Analysts said the sharp rise — $88 billion — in the forex reserves in the last three years will be major weapon in the armoury to fight capital outflows and liquidity shortage.

Minister of State for Finance Jayant Sinha said: “We need to brace ourselves for shortterm knee-jerk global reactions. We continue to emphasise that India is an open market oriented economy. Markets will find their own level. We have to ensure that we allow markets to adjust.”

Economic affairs secretary Shaktikanta Das said India has the firepower to withstand impact and did not expect foreign trade to suffer. Chief economic adviser Arvind Subramanian said, “Let’s not see this as unremittingly gloomy. There are a couple of silver linings. Oil prices have come down. That’s good for India’s macro situation,” Subramanian said. In 2013, the rupee had lost around 15 per cent to the dollar, hitting record lows almost daily, after the US Federal Reserve hinted that it would soon begin paring back its stimulus plan, sparking an investor exodus from emerging markets. The RBI came out with a series of steps to stem the rupee fall.