January 22, 2014 / 9:49 AM / 5 years ago

India prepared for Fed tapering, growth to accelerate: Chidambaram

DAVOS, Switzerland (Reuters) - Developing economies will feel some impact from the U.S. Federal Reserve’s winding down of its stimulus but India is better prepared than last year, Finance Minister Palaniappan Chidambaram said on Wednesday.

Finance Minister Palaniappan Chidambaram speaks during an interview with Reuters in New Delhi October 7, 2013. REUTERS/Anindito Mukherjee/Files

Speaking at the Davos economic forum, Chidambaram added that Indian growth was poised to accelerate. The ruling Congress party is trying to buoy the economy to win back voters in a national election expected between April and May.

“What I hear from everyone I meet in Davos and elsewhere is that we have succeeded substantially in stabilising the economy,” he told a panel discussion.

First signals from the Fed last May that it would begin to scale back - or “taper” - its extraordinary economic stimulus measures prompted many investors to pull funds out of emerging markets seen as risky, hitting asset values.

Saddled with hefty current account and fiscal deficits, India looked among the most vulnerable. The rupee went in a free-fall, losing as much as 20 percent against the dollar before recovering.

“We were concerned in May. But now I think we have done a lot of preparatory work,” Chidambaram earlier told reporters.

“There will be some consequences in developing and emerging economies but I think we are better prepared for the taper than when we were surprised in May.”

Explaining what India has done to prepare for the tapering, he said: “Fiscal consolidation has taken place. There’s more FDI (foreign direct investment) flowing into India, we’ve added to our reserves. The rupee is stable, and a number other of measures have been taken to bring stability in the capital market.”

Chidambaram said Indian growth was poised to accelerate.

“I think it is accepted all around that the Indian economy has stabilised in the last 12 months or so and that we are poised to grow back step by step to the 8 percent potential growth rate,” he said.

“(For the) financial year 2013/14 that will end in March, we will be only about 5 percent (growth). But (for the) financial year 2014/15, which is nine months of calendar 2014, we will cross 6 percent.”

Chidambaram accepted that some big investors may be hedging their bets on investments in India.

“I agree that the big investor is still hedging his bets, especially big industrial houses, but at SME (small and medium enterprise) level and at the medium industries level, bankers tell me that the demand for credit is still very high,” he said.

Nikesh Arora, chief business officer at Google (GOOG.O), said his group was “long-term bullish on the market. We continue to invest” in India.

Google was ready to invest in India regardless of the election outcome.

“It’s a variable we cannot control,” Arora said of the vote. “So, we will observe and we will keep investing in the market and I suspect a lot of people in the country will make sure that they keep the government accountable.”

Jeremy Bennett, Nomura’s chief executive for EMEA, was also positive about investing in India but added: “I think everyone recognises that if things could happen a little faster and the rules of the road be a little clearer that will help.”

Reporting by Paul Carrel; Editing by Jeremy Gaunt

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