Chidambaram says India better prepared to deal with Fed tapering

Allaying market fears, Finance Minister P Chidambaram has said India is better prepared to deal with any consequences of the US Federal Reserve's move to reduce monetary stimulus.

The stimulus to US economy has supported inflows of cash to emerging markets, including India.

After agonising investors for months, the Fed decided on Wednesday to trim its bond buying by $10 billion to $75 billion a month as a modest step and one the US economy could well withstand. Crucially, the US central bank softened the blow by making its forward guidance even more dovish.

"(The) government is of the view that the markets had already factored in the US Federal Reserve's decision and therefore is not likely to be surprised by these moderate changes," Chidambaram said in a written statement released by his office.

Worries over the Fed's possible tapering had triggered massive capital outflows between May and September from emerging markets.

Saddled with hefty current account and fiscal deficits, India looked the most vulnerable. The rupee went in a free fall, losing as much as 20 per cent against the dollar before recovering.

This prompted India to unleash a slew of measures to bolster its forex reserves and rein in the current account gap.

Chidambaram also spoke to Reserve Bank of India Governor Raghuram Rajan on Thursday morning to discuss the Fed tapering, the statement added.