Withdrawal of stimulus, as being talked about in the US, will not impact capital flows into India as the country does not depend on short-term borrowing, Planning Commission Deputy Chairman Montek Singh Ahluwalia said.
“I think if they (US) do that I don't think that the expected changes in quantitative easing (QE) will make a difference to the kind of inflows that we are talking about”, he said, when asked about the recent statement of US Federal Reserve chairman Ben Bernanke. Bernanke on Wednesday had said that the central bank could start scaling back its stimulus program in the next few months, but warned against acting too quickly and harming the still-weak economic recovery.
Bernanke's remarks about the possibility of scaling back of stimulus with improvement in economic conditions sent the global stock markets including that of India into tizzy. BSE Sensex tumbled by 390 points to 19674.33 on Thursday.
Given the importance of US on the global economy, Ahluwalia said that the reversal of the QE system would tighten the liquidity across the world.
As regards the impact on India, he added, “I am not sure that is so important for us because we don't encourage short term borrowing anyway…What is important is that how do people see Indian economy. Do they see it well managedIJ Do they see it getting back to higher growth rateIJ Do they see ours getting rid of obstacles that held up investments.”
On Thursday, Finance Minister P Chidambaram too had said, “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.”