BackReal economy will dictate rupee, market direction: Arun Jaitley
Jaitley says India is on a 'sound footing' as manufacturing and services sectors are picking up and the govt is focused on strengthening real economy
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Ankara: China’s recent devaluation of the yuan and the US Federal Reserve’s (Fed) likely interest rate hike are only transient factors, and it will be the real economy that will dictate currency rate fluctuations and markets in India, finance minister Arun Jaitley said.
India is on a “sound footing" as the manufacturing and services sectors have begun picking up, Jaitley said on the sidelines of a meeting of finance ministers and central bank governors of the Group of Twenty (G-20) nations that ended in the Turkish capital on Saturday. The government, he said, was focused on strengthening the real economy rather than being swayed by market volatility.
“At this stage, one needs to distinguish between the real economy and the impact of currency devaluation on stock market and domestic currency. Eventually, when this transient phase blows over, it is the real economy that is going to matter. That is what will dictate both the currency valuation and the stock market itself," Jaitley said.
Concern over the devaluation of the Chinese currency, which sparked a worldwide market sell-off, including in India, in the past few weeks, dominated the G-20 meeting. In the communique issued at the end of the meeting on Saturday night, G-20 members, including India and China, pledged to refrain from competitive devaluation and called for moving toward market-determined currency rates.
At the G-20 meeting, Jaitley spoke of the need for global safety nets to address concerns over volatility in the currency and stock markets, a demand that came in the backdrop of the shocks triggered by the Chinese devaluation. He also sought well-designed and quickly triggered safety nets under the International Monetary Fund (IMF) by strengthening of liquidity arrangements through multilateral swaps between member countries to tackle negative spillovers arising from domestic action.
“When compared to the rest of the world, we (India) seem to be on a sound footing. The other positive indication that has now come from the US is that their second-quarter growth figures are good and unemployment is going down," he said.
Jaitley said the leaders from across the world who attended the meeting took stock of the global economy, besides addressing the set agenda of the scheduled sessions.
“Leaders gave explanations about what is happening at their end. As far as India is concerned, obviously, last one month has been very choppy, including stock markets, predominantly for external reasons," the minister said, stressing the need to distinguish between the real economy and transient factors.
Answering a question on whether concerns on Chinese currency and a possible Fed rate hike were raised at the G-20 meet, Jaitley said comments were made from various quarters in this regard.
“The Fed hike remains a matter which the US will decide later this month. But, according to me, whatever situation emerges, that would be only a transient phase and, therefore, our response is that we have to strengthen our own real economy parameters," he said.
Jaitley said the G-20 meeting has taken place at a time when the global economy is witnessing unpredictable growth prospects. “Most of the economies are struggling both in terms of their growth rates and currency markets have gone through heavy fluctuations. We have taken this opportunity to strengthen our own policy framework and concentrate on the real economy.
“It is essential that India grows if we want to create jobs and bring prosperity for our people. Economy has now opened up in a big manner and more sectors are open for international investments," said the finance minister, who also met Turkish businessmen during an interactive session on the sidelines of G-20 meeting.
Jaitley said India will need to concentrate on initiatives to strengthen its real economy, particularly in manufacturing, infrastructure and service sectors.
“Even in the middle of hostile global winds, our efforts are to expedite growth and move towards a faster growth momentum. Between manufacturing and services sectors, we are an 8%-plus growth rate economy. It is agriculture which pulls it down a bit," he said.
Jaitley said that as far as agriculture is concerned, “we started with a good June and July, but we have not had a very positive monsoon in August and September. Therefore, some concerns are there... But overall, with manufacturing and services picking up, India’s ability to post a respectable growth rate looks very positive." Jaitley said India has an image of being an economy that has got a very large domestic market.
“We have a huge middle class, purchasing power is good, human resource is available in abundance. But I concede one of the things that was there is that it was considered non-competitive to do business in India, as permissions used to take time, governance was slow."
“That is one major area where a very fast movement is taking place. We are in the process of rationalizing our direct and indirect tax structures. We have very large natural resources and now the government has evolved a methodology for allocation of those resources through a transparent market mechanism," the finance minister said, adding that clearances have been expedited and more laws liberalized.
“We have been a net importer of oil and some other commodities. The current global price trends have favoured us and we have been able to generate a large amount of savings that we have used for infrastructure creation and for benefit of the consumers. Inflation is well under control."
“We have a big foodgrain surplus in India. Inflation which used to be very high a couple of years ago has now been contained. Our fiscal deficit has been going down. We have a very normal current account deficit," Jaitley said.
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