Finance Minister P. Chidambaram’s announcement that Prime Minister Manmohan Singh had endorsed the reforms measures proposed by him on Thursday lifted the markets as well as the rupee on Friday.
“I outlined yesterday, a series of long-term measures. Later in the day, in the meeting with the Prime Minister, he endorsed all those measures. You will see that these decisions are taken in the remaining days of June and July and will benefit the economy,” Chidambaram told reporters.
The Finance Minister had announced a five-point action plan on Thursday, which included decision on coal pricing and allocation of coal to power plants, gas pricing, review of foreign investment cap in various sectors, including defence, skill development and faster approval to pending projects.
Though the announcement had no impact on the market on Thursday, it brought cheer to the markets on Friday. Lower inflation data also helped the rally.
In fact, after Chidambaram’s statement about Prime Minister’s endorsement, market indices – BSE Sensex and NSE Nifty – rose sharply. There was improvement in the rupee, too. The BSE Sensex closed at 19,178 with a gain of over 350 points, while NSE Nifty ended the day at 5808, with a gain of over 109 points. The rupee recovered 47 paise to close at 57.51 to the dollar.
According to Chidambaram, it is the long-term measures that will bring stability and growth.
“Measures that we’ve taken since August have brought down inflation as well as the fiscal deficit. Therefore, the temporary problems that we face cannot be solved by quick-fixes. It will be solved by continuing to take long-term measures,” he said.
Since August-September 2012, the Government has taken several reform initiatives, including liberalising foreign direct investment norms in various sectors, capping the number of subsidised cooking gas cylinders and partial decontrol of diesel prices.
The Finance Ministry has managed to restrict the fiscal deficit to 4.9 per cent of GDP during 2012-13 and proposes to lower it to 4.8 per cent in 2013-14.
Market players feel that Chidambaram’s positive statement, coupled with lower inflation, helped the recovery. Now, with the “continued fall in inflation and weak cues on lower IIP (industrial production index), we expect the RBI to cut the cash reserve ratio by 25 basis points to ease liquidity,” said Motilal Oswal, CMD, Motilal Oswal Financial Services Ltd.