Terming the negative reaction to the U.S. downgrade as on expected lines, Planning Commission Deputy Chairman Montek Singh Ahluwalia on Monday said the markets should stabilise in the next couple of days.
“I would have expected the negative reaction in markets... (but) the markets will settle down, maybe in next couple of days,” he said.
Mr. Ahluwalia also said he did not consider the fall of about 2 per cent or so in Asian markets, including India on Monday morning, as severe.
“The downgrade (of the U.S.’ long-term sovereign rating) is not actually a surprise... the markets knew about it, the US itself recognised the factors (that led to the rating action),” he told news channel CNBC-TV18.
He said the currency market would be in a little bit of turmoil, but investors would not be looking at that. “They would look at whether the currency markets are well managed,” he said.
Ahead of the markets opening this morning, the RBI had said it was closely monitoring global developments and would continuously assess any impact on the rupee, forex liquidity and macroeconomic scenario.
Indian stocks dropped nearly 3 per cent in early morning trade, while losses were seen across all Asian markets.
Noting that the action of Standard and Poor’s was a judgement of the rating agency, Mr. Ahluwalia said that a downgrade -- which has happened for the first time since 1917, when the U.S. was first given a rating -- was still a significant event.
He further said that almost all the industrialised nations have problems and the world economy was definitely looking weaker than what it looked about six months ago.
“We definitely get adversely affected if the rest of the world slows down... only saving grace is that commodity market is not affected,” he said.
“Generally my feeling is anything that unsettles global economy is a bad news,” he said, while urging the global leaders and policymakers for a concerted effort to take the corrective steps.
He also said the focus on the fiscal deficit abroad will actually translate into much greater scrutiny and the people would more interested in looking at India’s fiscal deficit position also.
“We have to emphasise that we have a plan to control our fiscal deficit, in terms of what the growth rate is likely to be,” he said.
He, however, asserted that India has a sustained capacity for high growth and the Indian fiscal situation did not look bad.