Chidambaram allays fears of cheap money policy in US

Finance minister P Chidambaram today tried to play down the relevance of a cheap money policy or quantitative easing by its major trading partners, including the US, EU, China and Japan, saying the situation prevailing in this country is different.

The finance minister, however, failed to explain how these countries succeed in maintaining very low or even zero levels of inflation despite quantitative easing.

He merely said that as we see the situation in India, inflation – both the wholesale price inflation and consumer price inflation - have come down. Even consumer price inflation for agriculture labour has come down.

India, with its high interest rate regime, however, continues to receive foreign capital amidst falling interest rates elsewhere in the world and falling value of the Indian rupee, which together make India an attractive destination for foreign funds.

The finance minister said that there is no need for any kind of nervousness as, according to him, the stock market will stabilise by June and the second quarter of the current financial year starting July 2013.

Chidambaram said the Indian markets should read the situation correctly rather than be influenced by something happening elsewhere.

He said the Indian market has been solely led by what has been happening in other markets, adding that the US Federal Reserve chairman Bernanke's statement on quantitative easing has been misunderstood or mis-interpreted.

Chidambaram, however, agreed ''Bernanke has clearly indicated that he will continue with quantitative easing in the foreseeable future… about $85 billion a month or so.''

He said foreign fund flows into India in May 2013 have also been extremely copious.

He said the government hopes to limit oil subsidy during the current fiscal (2013-14) at Rs45,000 crore, already transferred to the ministry of petroleum and natural gas, adding that it will leave the government with Rs20,000 crore of the total budgeted subsidy of Rs65,000 crore.

With another Rs60,000 crore coming as upstream companies' share of the subsidy, the total available subsidy funds work out to Rs80,000 crore.