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Officials: India won't succumb to global turmoil

Indian financial institutions will not succumb to global turmoil and the country is on track to grow about 8 percent a year, India's Finance Minister said Thursday.
/ Source: The Associated Press

Indian financial institutions will not succumb to global turmoil and the country is on track to grow about 8 percent a year, India's Finance Minister said Thursday.

"All our financial institutions are on sound foundation," Finance Minister P. Chidambaram told reporters in New Delhi.

The nation's insurance and banking regulators have, he said, "assured me that there is no reason for apprehension."

Troubled U.S. insurance giant American International Group Inc., which the U.S. Federal Reserve propped up Wednesday with an $85 billion emergency loan, has two insurance joint ventures in India, both with the Tata Group.

Chidambaram said both ventures will remain solvent.

"We have received a full report from the Tata-AIG management. The solvency margins are adequate. The Tatas who own 74 percent of the equity have assured us that all payment obligations will be met," he said.

"AIG is not a failed financial institution," he added.

Chidambaram said the government would take steps to provide additional liquidity, if needed, and that the central bank is working to ensure orderly movement of the exchange rate.

India's stock markets have suffered as foreign institutional investors seeking liquidity and fleeing risk have pulled more than a billion dollars from the country in recent weeks. That, in turn, has put downward pressure on the rupee, which has fallen close to 10 percent against the U.S. dollar since Aug. 1.

The Reserve Bank of India this week said banks could tap additional credit — up to about $7.3 billion — if needed, reaffirmed its commitment to selling dollars and raised interest rate caps on foreign currency deposit accounts.

Chidambaram said despite the global storm, India's economy will grow about 8 percent this year.

His comments echo remarks by Prime Minister Manmohan Singh Wednesday, who said that Indian economic growth was on track to be the second-fastest in the world.

"In the current fiscal year, growth prospects may be affected by the global economic slowdown, the steep rise in international prices of petroleum products and other primary commodities. Even then, the overall growth rate of the economy will still exceed 8 per cent, making India the world's second-fastest growing economy," Singh told a conference of top government officials.