New Delhi: The Union Government and the Reserve Bank on Monday sought to allay fears on account of adverse impact of the US downgrade by a rating agency saying the fundamentals of the economy are strong and they were ready to address any concern that may arise from the present situation.

READ MORE: US downgrade affects Indian markets; RBI keeps a tab

While the government said it will fast track implementation of pending reforms, the Reserve Bank assured the industry that it will maintain adequate liquidity and respond quickly to evolving situation.

"Our institutions are strong and are prepared to address any concern that may arise on account of the present situation", said Finance Minister Pranab Mukherjee giving an assurance to the worried industry and nervous stock markets.

The government, he said, "will fast track implementation of the pending reforms and keep a close eye on international developments...we would focus on encouraging greater domestic consumption and give impetus to drivers of domestic growth".

Earlier in the day, the Reserve Bank said, "we will respond quickly and appropriately to the evolving situation," in an apparent bid to calm down the stock markets which opened on a nervous note on cues from global bourses.

"In the immediate future, the Reserve Bank's priority is to ensure that adequate rupee and forex liquidity are maintained in domestic markets to prevent excessive volatility in interest rates and the exchange rates", it said.

The BSE Sensex which saw a fall of 546 points in early trade, closed at a 14-month low of 16,990 points on lowering of sovereign rating of US by Standard and Poor's to AA+ from AAA, the highest rating, and fears of "double dip" recession hitting the world's largest economy.

Admitting that the global developments in the US and Eurozone will have some impact on the country, Mukherjee said, " India's growth story is intact and its fundamentals are strong, we are in a better position than other nations to meet the challenge".
The Finance Minister expressed confidence that India could see faster and greater FII inflows unlike after 2008 meltdown, in view of the higher returns that global investors could get here.

"There could be some impact on the capital and trade flows. But as India's growth story in strong, we could see FIIs seeing India as an attractive investment destination even if there is any temporary outflow", he added.

On the positive side, Mukherjee said, softening of international commodity prices, especially oil, would help in controlling inflation and maintaining fiscal balance for 2011-12.

Noting that downgrade has raised concerns of "continuing turmoil in global financial markets", the Reserve Bank said that it will closely monitor all key indicators and continuously assess the impact of global developments on rupee, forex liquidity and macroeconomic stability.

The country has enough reserves to meet the forex demand in the event of significant capital outflows, the RBI said.

In the worst phase of the recent global financial crisis, India recorded a growth rate of 6.8 per cent in 2008-09, suggesting high resilience emerging from domestic factors, it said.

"While the downside risks to growth may have increased in wake of the global developments, they are likely to have limited impact", RBI said.

Planning Commission Deputy Chairman Montek Singh Ahluwalia too said that Indian economy is driven by domestic factors and markets here will stabilise in the short-run, despite the recent meltdown on account of the US downgrade.

"The high growth of Indian economy is largely driven by internal factors. I feel the market will stabilise in the short-run. I don't expect to see a big negative impact but we have to watch the situation," he said.

Terming the slump in the stock market this morning as a "panic reaction", Chief Economic Advisor Kaushik Basu said that as India's growth story remains intact and there was no need of any policy intervention.

"Right now, we don't need any special measures ... Should the need arise, the government and the central bank are in a position to step in... But barring the immediate reaction to what is happening now, the India story remains robust."

The industry, meanwhile, began the clamour for a stimulus package for sectors which could face the brunt of the global slowdown.

"A slow pace of recovery in the US could also prompt hard hit sectors in India to call for another stimulus package by the government to boost investments and demand," Assocham Secretary General D S Rawat said.

In another development, rating agency Standard and Poor's indicated that slowdown could have implications for ratings for countries in the Asia-Pacific region, including India.

"The implications for sovereign creditworthiness in the Asia-Pacific would likely be more negative than previously experienced and a larger number of negative rating actions would follow," S&P said, adding, "Fiscal capacities of Japan, India, Malaysia, Taiwan and New Zealand have shrunk relative to pre-2008 level."