Indian Finance Ministry too confident of no-scam in Indian stock market and no-inflation from oil prices – dreaming in day light?
Sudhir Chadda
Sep. 17, 2005

Is India dreaming in day light with self-fulfilled self denials. Indian Finance Minster says there is no scam in Indian stock market and there is no inflation from escalated oil prices. Well is there any stock market in the world where there is no scam? Forget about Indian stock market! With crude prices around 65 to 70$ a barrel, there is no inflation? Gold just made 17 year high – no inflation? Is there a need for Economics 101 course here?

Finance Minister P Chidambaram on Saturday asserted that "no scam was in the offing" as made out in certain sections with the Sensex surging towards the 8,400 mark. "There is no cause for alarm. It is completely wrong to say a scam is in the offing and I deny such reports," Chidambaram said emphasising that his concern is not about the number the Sensex will hit but the Price to earnings (P/E) ratio, which is in the comfort zone. "As long as P/E ratios are in the comfort zone and corporate performance is good, I don''''t think there is a cause to worry," he said. During the bull-run in 90s and early 2000 when the stock market crashed, Chidambaram said the P/E ratio had crossed 30, 35 and even 40 and "there is no such cause for worry now" with the P/E ratio at about 16.5. At the same time, the Finance Minister said the government was keeping a close watch on the stock market to ensure it functioned in an orderly manner. In this connection Chidambram had called a meeting of an internal committee of advisors on the capital market on Thursday. This was followed by a meeting with SEBI Chairman M Damodaran on Saturday, shortly before the Finance Minister left on a foreign tour to participate in Commonwealth Finance Ministers Meeting in Barbados and the World Bank-IMF meeting in Washington. The Government has already looked into the exposure of Public Sector banks in equity and they appeared to be in order. They are well within the five per cent limit, Chidambaram said. He said as a precautionary measure RBI has been asked to look into whether the non-deposit taking NBFC loans were within prescribed limits, while market regulator SEBI would look into the penny stocks. The fact that foreign investors have great confidence in the Indian market went to show the markets are well regulated, the finance minister said. He said there were no signs of speculative bubble in the stock market even though it has risen substantially.

India says inflation remains under control and the economy is on track for strong growth despite the second hike in domestic fuel prices in a year. India's chief economic advisor Ashok Lahiri said on Friday the country was expected to hit its inflation target of 5.0 to 5.5 per cent for the financial year ending March 31, 2006. The statement came after government data showed inflation rose marginally to 3.16 per cent for the week that ended September 3, mainly on the back of higher industrial fuel prices, food and other commodities. Inflation stood at 3.01 per cent in the previous week. The government earlier this month raised petrol and diesel prices by about seven per cent after boosting them by a similar amount in June. India imports 70 per cent of its crude oil needs and has been engaged in a frenzied quest to secure new oil and gas supplies at home and abroad to sustain its burgeoning economy. The latest price hike, which still left a large difference between domestic and world prices, brought some relief to state oil companies which have been protecting consumers from rising energy costs by subsidising fuel. But it sparked concerns it would put pressure on inflation and subdue brisk consumer demand. "So far, so good. I am not revising my (inflation) target and endorse the Reserve Bank of India's projection of 5.0-5.5 per cent inflation during this fiscal year," economic advisor Ashok Lahiri said. He said he was confident India's economy was poised for seven to eight per cent growth in the coming years despite the impact of high global oil prices. But he added that billions of dollars in investment were required in infrastructure, such as the struggling power sector, to spur economic growth. Government officials and economists say tight control over money supply by the central bank coupled with brimming foreign exchange reserves of around 145 billion dollars were helping India keep a lid on prices. "Domestic inflation is quite satisfactory. Nothing has changed that would lead us to change our projection," Lahiri said. Indian Finance Minister Palaniapan Chidambaram also dismissed worries about the economy being hit by inflationary pressures. "Our economic fundamentals are strong -- with foreign exchange reserves buoyant, exports rising, the balance of payment position robust, rupee strong and inflation moderate," he told reporters. "Government revenues until August were according to the budget projection." Chidambaram said economic growth would be sustained by a good agricultural performance, healthy industrial production and growth in the services sector. "Inflation will pick up to around 4.5 per cent by end-October. For the whole year, the average will be 4.0 to 4.5 per cent," said DH Pai Panandikar, economist at New Delhi-based think-tank RPG. The fuel price hikes, he said, "can be taken in stride".

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