Take informed decisions, don't act in haste: FM to investor

Speaking after addressing a special Cabinet meeting, Finance Minister P Chidambaram said US, and European countries are facing severe financial crisis. "India is feeling the ripple effects of this crisis. Authorities in the US and Europe are taking bold steps to stabilise the crisis. We hope the steps taken by these authorities will be effective."

He said the fundamentals of the Indian economy are strong. He cautioned investors to take informed decisions and not act in haste and said that there is no reason for investors to panic. He said that the Indian economy grew at 7.9% in Q1 and he expects the growth to be at 8% for full year. He expects the investments in pipeline to continue to be high. "The FDI from April to August has been robust a USD 14.8 billion and the cumulative FDI pipeline is robust especially power, steel, oil, auto sectors. The main problem of financial crisis is liquidity. The Indian banking system is sound and we have enough levers to keep Indian economy stable."

Chidambaram said that there are huge capacities being added across sectors. "The Cash adequacy Ratio of Indian banks are above BASEL and RBI norms. The Indian economy has the capacity and resilience to weather the global economic storm. We will continue to provide credit and other support to ensure growth. The RBI is closely watching the situation to take steps if required. Inflation control still a very high priority. The stability of the Indian financial system is also a major priority. The RBI governor is in touch with other bankers and will take necessary steps."

He said that the Indian exposure to the subprime and mortgage market is virtually nil. "The fundamentals of the Indian economic strong sentiment are weak, but it will revive. The rupee is under pressure due to the slowdown of dollar inflows. The Govt, RBI and SEBI are taking steps to revive FII inflows. Relaxing of the P-note norms will encourage inflows. The rupee will find an appropriate level. The Current account and trade account deficit is comfortable for the economy to grow at 7.9%. The Indian economy will grow close to 8%."

Earlier, the Finance Minister said that a bill for regulating exit polls during polling dates to be introduced soon. He said some modications to the agriculture package for drought hit areas now to be implemented over a fvie year period instead of the earlier three years.

Here is a verbatim transcript of Finance Minister P Chidambaram's interview to CNBC-TV18. Also see the accompanying video.

This item is a paper from the Ministry of Finance for amendment of Section 20 of the Indian Trust Act. Section 20 as it stands on the statuette book today is a relic of the British Raj, the provisions relate to instruments that are no longer in the market. Therefore, Section 20 is being replaced by a new Section 20. This is the clause that governs the investment of trust money. Which are the instruments or securities or class of securities in which trust money can be invested. This has been approved.

On Tirupati international airport:

The next item is the declaration of Tirupati in Andhra Pradesh as an international airport. The proposal from the Ministry of Civil Aviation has been approved. But the exact date from which it will function as an international airport will be announced later once the physical infrastructure, the custom staff and others are in place. But it won't take very long.

The decision to make Tirupati an international airport will offer improved air connectivity, wider choice of services and will boost tourism in that region. There will be some expenditure there in terms of installation of x-ray machines. There will be an arrival and departure hall, and then some security equipment is to be installed, some staff have to be appointed. We think that it will require one Joint Commissioner to Assistant Commissioner.

On plasma fractionation centre:

The next item is a proposal from the Ministry of Health and Family Welfare for setting up a plasma fractionation centre. We don't have a plasma fractionation centre yet. It will be part of the ongoing National Aids Control Programme (NACP) phase-III. The plasma fractionation centre will cost Rs 185 crore. This is to ensure access of plasma derivatives to needy patients at affordable prices. This will also reduce our dependence on import of Factor 8 and Factor 9.

Plasma as you know is one of the components of blood and can be used for preparation of several plasma derivatives. Transfusion of plasma and administration of plasma fractionation derivatives is indicative for a number of medical conditions as a life saving measure such as haemophilia, Von Willebrand's disease, and immuno-deficiencies. These patients require periodic transfusion of a desired plasma product for their clinical management.

However, in the absence of access to these plasma derivatives, what they are now being given is blood. But this is a sub-optimal use of blood. Plasma is the optimal use of fractionated blood. At the moment, bulk demand for plasma components is met through imports. Therefore we have decided to setup a plasma fractionation centre. Its capacity will be to process 1.5 lakh litres of plasma annually. The centre will process plasma to make plasma components such as albumen, Gamma globulins, Prothrombin Complex, Thrombin, anti-haemophilic factor etc. These products will be provided to public sector hospitals at affordable prices for the treatment of patients who visit public sector hospitals.

On rehabilitation package for farmers:

There was a proposal from the Ministry of Agriculture for a modification of rehabilitation package for farmers in the suicide prone districts of Andhra Pradesh, Karnataka, Kerala, and Maharashtra.

On SC/ST legislation:

Next item is the proposed legislation on Scheduled Castes and Scheduled Tribes (Reservation in Posts and Services) Bill 2008. The proposed law will create an unambiguous, coherent, and authentic framework for implementing reservation for Scheduled Castes and Scheduled Tribes in central government services and government institutions. It will also infuse greater confidence in the minds of Scheduled Castes and Scheduled Tribes that the reservation policy is being implemented in letter and spirit.

Earlier in the day, Finance Minister P Chidambaram said...

Markets are reacting to what is happening in the US and Asian markets. In fact after the statement by Fed Chairman Ben Bernanke yesterday evening and the manner in which the Asian markets opened this morning, we anticipated that there would be some selling pressure in the Indian markets. Fundamentally, there is nothing wrong in the economy. The fundamentals do not warrant any hasty or precipitous action on the part of investors to sell.

Indirect tax collections are over target, at little over 14%. Personal income tax collection has grown by 23.4%, corporate tax collection has grown by 35.3%, and customs revenues for September are higher than their average for April-August. The Ministry of Commerce reported that they are counting on some late returns. Exports in dollar terms have risen by 35.1% in April-August; while imports have risen by 37.7%.

Many sectors like coal, mining, automobiles, chemicals, and chemical products have shown impressive growth rates. The construction sector has grown by 11.4%. Railway revenue earning traffic has increased 9.4%.

All our banks are well capitalised, bank capital is between 10% and 13.65% which is well above Basel norms. A report of the Center for Monitoring Indian Economy, or CMIE, shows that accumulative investment is extremely high. Investment at the end of June 2008 is little over Rs 66 lakh crore as against Rs 44 lakh crore at the end of June 2007. In July, there has been further investment of Rs 2.18 lakh crore, with another Rs 1.33 lakh crore in August.

These are investment intensions that have been announced and firmed up and the pipeline investment is there. So, by and large everybody must be confident about Indian economy going forward. I have no advice to investors. It is for them to take decisions but my firm opinion is that fundamentals of Indian economy are still strong; the economy is still humming with activity. As far as depositors are concerned, there is nothing to worry. Our banks are well capitalised and well regulated. Everybody in the world accepts the fact that our banks are well capitalised.