Mr Chidambaram also lauded the steps taken by the Reserve Bank of India(RBI) to pump liquidity by twice consecutively cutting down the Cash Reserve Ratio (CRR) A statement read out by Finance Secretary Arun Ramanathan on behalf of the Finance Minister took note that the RBI had cut CRR by 50 basis points on October 6, 2008, and this morning a further reduction in the CRR by 100 basis points, thus making a total reduction of 150 basis points.
As a result of the 150 bps reduction in CRR an amount of about Rs 60,000 crore would be released into the system.
''I welcome the decision of the RBI. The Governor, RBI has also assured the Government that the bank is keeping a close and continuous watch on the situation and will take appropriate steps according to the evolving situation,'' Mr Chidambaram said.
Mr Chidambaram said he had received a number of representations from banks, other financial entities and intermediaries, corporates and small businesses that the issue of liquidity must be addressed in a comprehensive manner. He said they have impressed upon him that intermediation of credit must take place smoothly and efficiently.
The Finance Minister said he has, therefore, decided to constitute a group to make a quick assessment of the requirements of liquidity and advise the Government.
The group is to be headed by Mr Ramanathan, who is also Secretary (Financial Services).
The other members of the group are; A representative of RBI; Mr T S Narayanaswamy, Chairman, IBA and CMD, Bank of India; Mr U K Sinha, CMD, UTI; Mr Y M Deosthalee, CFO, L &T and Director-in-charge, L &T Finance Limited; and Mr R M Malla, CMD, SIDBI.
The Group has been authorised to co-opt any more members, if necessary.
Mr Chidambaram said he has requested the group to begin work immediately, and also visit Mumbai, and submit an interim report within a week.
Mr Chidambaram said in consultation with RBI and other regulatory authorities,the government will address the liquidity and other concerns about the economy. The Finance Minister noted that on Wednesday, the Cabinet reviewed the financial situation in India and authorised him to issue a statement on its behalf and the government.
''We have identified that the main problem is liquidity, and we have assured the people that we will respond swiftly and take steps to infuse more liquidity according to the needs of the situation.
Reserve Bank of India was advised to take appropriate steps in this regard,'' he said.
Mr Chidambaram drew attention to the statement made by World Bank President Robert Zoellick, that ''India is in a position to weather the global financial turmoil.'' He also draw attention to the statement of Asian Development Bank President H Kuroda, that ''the impact on the financial sector in Asia is limited this time.'' The Finance Minister said credit was the lifeline of trade, commerce and business and, hence, it was important that credit continues to flow to all sectors of the economy.
He said it was important to maintain confidence in the Indian economy.
''As the Cabinet noted on Wednesday, the fundamentals of our economy are strong and there are many indicators which affirm the sound fundamentals,'' he said.
The injection of liquidity by the RBI into the financial system was done due to the global turmoil and domestic developments.
The RBI, which has been steadily tigthening monetary policy since 2004, in a bid to control inflation now at 11.80 per cent, has taken a U-turn in view of the rapidly changing global and domestic realities.
The stock markets, on a secular decline for some months now, were on a slide on Friday and this morning, notwithstanding reassuring messages by the Indian government.
The Rupee fell against the dollar to a six year low of 49.07 due to the deepening global financial crisis and foreign fund outflows.
''We are sufficiently strong enough to handle anything,'' Mr Ramanathan quipped.