Factors like the Chinese devaluation of yuan and the US Fed’s likely interest rate hike are “transient” and it will be only the real economy that will dictate the currency rate fluctuations and markets in India, says Finance Minister Arun Jaitley.
He asserts that India is on a “sound footing” as manufacturing and services sectors have begun picking up and the government was focused on strengthening the real economy rather than being swayed by the 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.
As the Chinese devaluation triggered a global market sell off, including in India in the past few weeks, the issue dominated the G20 meeting here and in the communiqué issued at the end of the meeting last night the 20 big economies, including India and China, committed themselves to refrain from competitive devaluation. They called for moving towards market-determined currency rates.
Jaitley strongly pitched for global safety nets to address concerns over volatility in currency and stock markets, a demand that came against the backdrop of the economic shocks triggered by the Chinese devaluation of yuan.
He also sought well-designed and quickly triggered safety nets under IMF by strengthening of liquidity arrangements by multilateral swap arrangements between member countries to tackle negative spillovers arising from domestic action.
