The Hindu Business Line : Gear up for a volatile market, Chidambaram tells regulators

TALKING HEADS: The Union Finance Minister, Mr P. Chidambaram; the IOSCO Executive Committee Chairperson, Ms Jane Diplock; and the SEBI Chairman, Mr M. Damodaran, at the opening ceremony of the 32 annual conference of the International Organisation of Securities Commissions held in Mumbai on Wednesday. — Paul Noronha

Mumbai April 11 The Finance Minister, Mr P. Chidambaram, has called upon regulators and market players to gear up to face the current volatility in the equity, debt and forex markets.

Addressing a gathering of capital market regulators from over 100 countries here on Wednesday, Mr Chidambaram said there would be uncertainty with respect to the movement of international interest rates and exchange rates. There is also a potential threat to financial stability of the emerging market economies arising out of global macro-economic imbalances.

"We have to live with some degree of volatility in the equity market, forex market and debt market irrespective of the level of capital account convertibility," the Finance Minister said at the annual Conference of the International Organization of Securities Commissions, which he inaugurated here on Wednesday.

He said by the end of 2007-08, India will have a GDP of $1 trillion with savings and investment rates well in excess of 30 per cent. This means that giant financial flows will be intermediated in India.

And to address the accompanying volatility, he said it is essential to upgrade the risk management system, improve the governance standards and strengthen the regulatory framework.

Mr Chidambaram said inflation expectations loom large in most parts of the world and many central banks have responded positively to tighten liquidity so that inflation is held back. Later, speaking to reporters on the sidelines of the conference, Mr Chidambaram had defended the measures taken by the Reserve Bank of India recently to control inflation.

Referring to the relationship between regulators and Governments and their respective roles, he said since both operate in the same space, their responsibilities should be clearly demarcated.

At the same time, the regulator must be allowed to grow up to take responsibility for its actions, which requires empowerment of the regulator and provision for its accountability. He also called for a strict separation of powers among the legislative, executive and judicial wings of the regulator.

Speaking on the occasion, Mr M. Damodaran, Chairman of SEBI, which is hosting the conference, said all topics of discussions, particularly on hedge funds, are relevant to India. SEBI is currently considering allowing registration of hedge funds.

The phenomena of stock exchanges becoming transactional and the resultant regulatory challenges also occupy considerable mindspace, he added.

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