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India shoring forex reserves to deal with US tapering: FM

October 14, 2013 17:31 IST

Finance Minister P Chidambaram has said that India is shoring up its forex kitty to deal with the impact of US tapering and expressed confidence that growth will revive in the second half of the current fiscal.

"Tapering will start. I think (US Fed Chairman) Ben Bernanke hinted again that tapering will start. We are in fact prepared for tapering... we are preparing for tapering...So we are taking a number of steps to shore up foreign exchange reserves", he told CNBC-TV18 in an interview.

Tapering refers to gradual withdrawal of monetary stimulus by the US Federal Reserve. The reversal of the easy money policy by the US is expected to impact the global markets as well as the economy.

"First of all we are shoring up our foreign exchange reserves. Since the FCNRB revised policies were announced, we have had about $7.4 billion coming in.

"Secondly, we have entered into an agreement or we will enter into an agreement with Japan for a $50 billion swap arrangement. Thirdly, portfolio investment has brought in about $2 billion already, then we are encouraging oil marketing companies (OMCs) to borrow abroad to finance their purchases of oil", he said.

Liberalised External Commercial Borrowings (ECB) norms will also bring in some money, he said, adding investment proposals in the telecom sector too were expected to fetch forex reserves in November and December.

"So a number of things, number of steps have been taken but I think this time Ben Bernanke will be a little more careful, more calibrated and he will perhaps communicate his actions well in advance", he said.

Answering questions on growth prospects, Chidambaram said "let us wait to see what Q2 brings and I am sure the second half of the year that is Q3 and Q4 will be much better than Q1 and Q2."

Growth has dipped to decade's low of 5 per cent in 2012-13 and during the first quarter of the current fiscal it was 4.4 per cent.

"True, in the Q1 of 2013-2014, growth slowed down to 4.4 per cent but unless there is a further slowdown, why should I lower it below 4.4 per cent? It can only be up from 4.4 per cent,” he said.

Chidambaram had earlier questioned the move of the International Monetary Fund (IMF) to lower the growth forecast of the current fiscal to 3.8 per cent from 5.6 per cent in July.

"We do not share this pessimistic outlook. We also believe there is a need for reviewing the methodology for growth projections as in the past International Monetary Fund (IMF) projections have often been at divergence with final growth numbers," he had said.

Chidambaram had been maintaining that India's growth rate in the current fiscal would range between 5 to 5.5 per cent.

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