Market mayhem: Govt, RBI to take all necessary steps to quell 'fear sentiment' around coronavirus, says CEA KV Subramanian

New Delhi: The government and the RBI will take all necessary steps to quell the “fear sentiment” created due to coronavirus, Chief Economic Advisor Krishnamurthy Subramanian said on Friday. He said the fall in Indian stock indices is lower than the decline witnessed globally and the situation in India will stabilise over the next few weeks as focus shifts to economic fundamentals like declining inflation, growing industrial production and adequate forex reserves. “The government is seriously considering and looking at all aspects of this situation and the government together with the regulator will definitely respond when it is necessary. Market reaction is not reflecting fundamentals, fundamentals (of Indian economy) are improving,” Subramanian told reporters here. Trading on the Indian stock exchanges hit a “circuit breaker” – first time since 2008 – as soon as markets opened on Friday. Both Sensex and Nifty plunged over 10 percent, hitting their lower circuit levels, as new coronavirus-led recession fears triggered panic selling in the market.

@SubramanianKri says the #StockMarket reaction is not reflecting fundamentals. He adds that India has adequate foreign reserves #CoronavirusOutbreak pic.twitter.com/XGficNHqaU

— CNBC-TV18 (@CNBCTV18Live) March 13, 2020

In the currency markets, the Indian rupee fell to a record low of 74.5075 (intra-day) against the US dollar. Subramanian said current developments in the market are all related to global factors and countries like Russia, Brazil, France, Germany, Argentina, the UK, the US and Japan witnessed a 20 percent fall in stock prices from 31 January till 12 March. “So what we are seeing currently is a reflection of some of the global factors related to coronavirus episode… Stock markets often react with greed and fear. Currently, there is fear because of coronavirus. It (the decline in stock market) is because of global factors and fear sentiment which I expect to come down un the next few weeks as we get a handle,” he said. Coronavirus has led to over 4,300 deaths globally, leaving over 1.25 lakh people infected. In India, there are 74 cases of coronavirus and one case of death so far. Asked if the Reserve Bank would follow other central banks in cutting rates to provide a fillip to economic activity, Subramanian said “this is something that is being thought through. Other central banks have certainly responded and inflation data clearly suggests moderation. “Also we expect core inflation to go down further because of decline in oil prices. So I think there is scope for the central bank to consider these different aspects.” He said services sectors like tourism, hotels, restaurants and movies would be impacted due to the lockdown on account of coronavirus and the government will continue monitoring these sectors. “Government is watching and tracking the data very carefully. Government and RBI will take all steps necessary,” Subramanian said. Data released on Thursday showed India’s factory output rising marginally in January, while retail inflation easing to a two-month low in February. The Index of Industrial Production (IIP) grew by 2 percent in January against 1.6 percent a year back, displaying moderate green shoots. Retail inflation eased to 6.58 percent in February, from 7.59 percent in the previous month, but remained above the Reserve Bank of India’s target band of 4 percent, plus or minus 2 percent. The current account deficit (CAD), which is the difference between inflow and outflow of foreign exchange, narrowed to 1 percent of GDP in the April-December period of current fiscal, from 2.6 percent of GDP in the corresponding period in 2018-19 fiscal. India’s forex reserves stood at at $487.24 billion as on 6 March, 2020. Subramanian said India’s forex reserve is “absolutely adequate” and the decline in oil prices will help significantly lower the CAD.