India Preparing for Global Easy-Money Reversal, Finance Minister Says.

WASHINGTON—India has been adding to its foreign-exchange reserves and narrowing its trade deficit to better prepare for a reversal in global easy-money policies, according to the country's finance minister.

In the summer, investors pulled out of India and other emerging markets in anticipation of tighter monetary policy by the U.S. Federal Reserve. India's currency fell by nearly a quarter before rebounding.

"We've reversed the direction of the flows. Foreign exchange is flowing to the country now," said the finance minister, Palaniappan Chidambaram.

Speaking on the sidelines of the annual meetings of the International Monetary Fund here, Mr. Chidambaram said the country is "shoring up our foreign-exchange reserves."

India was one of the countries hardest hit after Fed officials hinted in May at changes to an $85 billion-a-month bond-buying program, which had provided cheap liquidity to the global financial system.

One important reason: The size of India's wide current-account gap, a reflection of the fact that the country imports far more than it exports.

Mr. Chidambaram said steps taken by the government to reduce imports and add to exports have been working to narrow the deficit. He earlier this year said the gap should shrink to $70 billion for the 12 months ending March 31, from $88 billion in the previous financial year.

"We will be able to finance the current-account deficit fully and safely. That will mean more inflows will come to India," Mr. Chidambaram said.

He said India and other developing countries at the IMF meetings said the U.S. needs to be mindful of how its monetary policies are affecting large emerging markets. "I think they have acknowledged that it was necessary on their part to communicate their intentions," said Mr. Chidambaram.

Last year, when Mr. Chidambaram took over as India's finance minister for the third time, one of his first steps was to loosen restrictions on foreign investment in multibrand retailing.

The idea was to allow companies such as U.S. giant Wal-Mart Stores Inc. to set operate retail stores in India. But last week, Wal-Mart said it was shelving its plan for a retail presence in India.

Mr. Chidambaram said India had taken steps to remove some of the stumbling blocks that Wal-Mart had considered obstacles in government policy.

"If Wal-Mart is still not satisfied, so be it," he said.

Mr. Chidambaram said three or four other companies, both American and European, had expressed interest in setting up multibrand retail stores in India.

"I have no doubt in my mind that you'll see the first of the multibrand retail investments in the near future," he said.

Source : online.wsj.com