As economy shatters, Indian rupee plunges, PM Manmohan Singh tells Indians to shun their golden cruise

Written by PTI | New Delhi | Updated: Aug 31 2013, 03:29am hrs
PM Manmohan SinghPrime Minister Manmohan Singh assures the Rajya Sabha that the government is working hard to arrest the rupee slide. (PTI)
Notwithstanding concerns over sliding Indian rupee, Prime Minister Manmohan Singh today ruled out reversal of reforms or resorting to capital controls to rescue the currency which he said fell on account of domestic as well as global factors.

PM Manmohan Singh in Lok Sabha: Read full speech

Making a statement on the state of the economy in Parliament amid concerns over rapid depreciation of rupee, Singh said the country has to be ready for short-term shocks but the government will ensure that the fundamentals of economy remain strong.

"We are faced with challenges but we have the capacity to deal with them,", he said, while seeking support of all political parties in this situation.

Related: Indian Banks well capitalised to provide for bad loans, says Manmohan Singh

Related: Easy reforms over, time now for difficult ones, says Manmohan Singh

Related: June quarter GDP growth will be relatively flat, says Manmohan Singh

Related: Manmohan Singh takes on BJP, blames it for loss in investors' confidence

Breaking his silence on the decline of rupee, he said there "may be short term shocks to our economy and we need to face them. That is the reality of the globalised economy, whose benefits we have reaped".

There is no question of reversing the policies just because there is some turbulence in capital and currency markets, he said, adding the "sudden decline in exchange rate is certainly a shock, but we will address this through other measures, not through capital controls or by reversing reforms".

Not satisfied with the Prime Minister's statement, the Opposition parties including BJP, AIADMK, Left and SAD staged a walk out in the Lok Sabha.

Pitching for more reforms, the Prime Minister said easy reforms of the past have been done but the difficult ones remain.

In his last speech, RBI Governor Subbarao blames UPA for mess Indian rupee, economy is in

"We have the more difficult reforms to do such as reduction of subsidies, insurance and pension sector reforms, eliminating bureaucratic red tape and implementing Goods and Services Tax," he said.

"These are not low hanging fruit and need political consensus... We need to forge consensus on such vital issues. I urge political parties to work towards this end and to join in the government's efforts to put the economy back on the path of stable and sustainable growth," Singh said.

P. Chidambaram will one day say 'thank God RBI exists, says D Subbarao

The Prime Minister attributed the sudden and sharp depreciation in rupee to various domestic and global factors like high current account deficit (CAD), US Federal Reserve plans to taper quantitative easing measures and tensions in Syria.

"... the rupee has been especially hit because of our large CAD and some other domestic factors. We intend to act to reduce the CAD and improve the economy," Singh said.

The deterioration in CAD, he said, has been mainly on account of huge import of gold, higher cost of crude oil imports and recently of coal.

Moreover, Singh said that exports have been further hit by collapse in iron ore shipments making "our CAD unsustainably large".

"Clearly we need to reduce our appetite for gold, economise the use of petroleum products and take steps to increase our exports," the Prime Minister said, adding the government will take all possible steps to bring down CAD below USD 70 billion this fiscal.

The Prime Minister said the medium term objective of the government will be to reduce CAD to 2.5 per cent of GDP and the government will make all efforts to maintain "a macro economic framework friendly to foreign capital inflows to enable orderly financing of the current account deficit".

"... it is important to recognise that the fundamentals of the Indian economy continue to be strong," Singh said.

Emphasising that the country's overall public-debt to GDP ratio has been declining, he said India's external debt is only 21.2 per cent of GDP while short-term stands at 5.2 per cent.

"Our forex reserves stand at USD 278 billion, and are more than sufficient to meet India's external financing requirements," he said.

The rupee depreciation, he said, can be good for economy as it will help to increase the export competitiveness and discourage imports.

The foreign exchange markets, he regretted, have a notorious history of overshooting.

"Unfortunately, this is what is happening not only in relation to the rupee but also other currencies," Singh said, stressing that the value of a currency is determined by fundamental of the economy and the government is taking steps to improve them.

Referring to economic prospects, Singh said that even though growth has slowed down in recent quarters, it is expected to pick up.

"I expect growth in the first quarter of 2013-14 to be relatively flat, but as the effects of the good monsoon kick in, I expect it to pick up," he said.

"All in all, the macro-stabilisation process which should support the value of the rupee is under way. I expect that as the fruits of our efforts materialise, currency markets will recover," he said.

Regarding fiscal deficit, the Prime Minister said the government will do whatever is necessary to contain the fiscal deficit to be 4.8 per cent this year.

"The most growth friendly way to contain the deficit is to spend carefully, especially on subsidies that do not reach the poor, and we will take effective steps to that end," he said.

Manmohan Singh, Sushma Swaraj spat spills into the social media

The war of words over Prime Minister Manmohan Singh's attack on the opposition spread to the social media with Sushma Swaraj saying he had lost grace while I & B Minister Manish Tewari hitting back claiming that it was the BJP leader who had lost space in her party.

Earlier, Swaraj, Leader of the Opposition in the Lok Sabha, said on Twitter "the Rupee has lost its value. The Prime Minister has lost his grace."

The I & B Minister was quick to post a lyrical retort in a post on Twitter.

"Leader of opposition Sushma Swaraj, PM Never loses grace.

Fact - BJP has lost its base, frustration is setting its political pace and a leader of opposition who has lost intra-party space," Tewari said.

Congress too jumped in the social network ring with General Secretary Ajay Maken saying the PM has shown the mirror to the opposition.

"PM showing mirror to opposition; 1999-2004 when Congress was in opposition, the total disruption in Lok Sabha was 18.95 percent, now it is 36.7 percent," Maken tweeted.

Time to push crucial reforms, says Industry on PM address

India Inc today said Prime Minister Manmohan Singh's assertion that the government will not impose capital controls, although reassuring to investors, must be supplemented with tough reform measures.

"Going ahead it will be imperative to continue the push on the reform front. We need to reignite the sentiment among investors...It is now time to turn focus on difficult reforms like reducing subsidies, undertaking pension and insurance reforms, implementing GST and improving the regulatory environment," Ficci President Naina Lal Kidwai said.

Echoing similar views, Assocham President Rana Kapoor said: "The government needs to show political courage to go for market related pricing of diesel and petrol even though it is an election year. After all, the economy is in dire straits... It is time tough reforms are now launched".

Exhorting the government to show the political resolve needed to push through crucial reforms, corporate India said containing the current account deficit at USD 70 billion and the fiscal deficit to 4.8 per cent during 2013-14 would be crucial to get growth back on track.

"While global factors may be responsible for the pressure on currency, answers have to be found within by a government which needs to show political resolve. Fiscal prudence must dictate the public discourse rather than political expediencies which the country can ill afford at this difficult juncture," Kapoor said.

Singh, in his elaborate statement on the economy, in Parliament, ruled out rollback of reforms and bringing in capital controls while appealing for a political consensus to put the economy back on high growth path.

Indian PM Manmohan Singh says economy can weather rupee storm

(Reuters) - India's prime minister sought to quell talk of currency crisis on Friday, after the rupee plumbed record lows as it notched its biggest ever monthly fall, but there was no word of sweeping reforms needed to restore investor confidence.

Weak economic growth, a record high current account deficit and concerns about the government's finances are proving a toxic mix for the rupee, which hit a record low of 68.85 to the dollar on Wednesday after falling 20 percent since May.

Dollar selling by the Reserve Bank of India, rather than Prime Minister Manmohan Singh's speech to parliament, helped pull the rupee out of a slide back towards the lows on Friday, but it has lost around 10 percent of its value in August alone, according to Thomson Reuters data.

While global factors such as the potential end to U.S. stimulus and most recently tensions over Syria have sent emerging market currencies reeling, the scale of the rupee's decline is far greater than most.

Singh said the currency's fall was a matter of concern, but dismissed doomsayers predictions for the Indian economy, insisting its fundamentals remained sound and its banking system was well capitalised above international requirements.

"We need to ensure the fundamentals of the economy remain strong so that India continues to grow at a healthy rate for many years to come," the octogenarian prime minister told lawmakers in his first significant speech to parliament on the economy in months.

"That we will ensure. We are no doubt faced with important challenges."

Gross domestic product (GDP) data, due to be released after the markets close, is expected to show the economy grew 4.7 percent in the April-June quarter, the third consecutive quarter of sub-5 percent growth.

India suffered decade-low growth of 5 percent in the fiscal year that ended in March, and many analysts surveyed by Reuters during the past week expect this year to be worse.

Singh, a veteran economist who made his reputation as finance minister overseeing India's recovery from a balance of payments crisis in 1991, predicted growth would recover to 5.5 percent this fiscal year.

With a national election due by May, Singh's minority government is under fire from all quarters to come up with meaningful reforms, including a possible increase in diesel prices, that would lower the subsidy burden.

He said the government would need to find ways to reduce imports of gold and oil products to reduce the trade gap, and he put a gloss on the rupee's depreciation by saying it would help make exports more competitive and reduce imports.

By mid-afternoon, the RBI's intervention had helped the rupee recover to 66.25 per dollar from an earlier low of 67.43, to stand a touch stronger than Thursday's close of 66.55.

ELECTION LOOMING

Singh's liberalisation of a moribund economy in 1991 provided the platform for 20 years of rapid economic growth, and he has been credited as the architect of India's emergence as a serious economic power.

But now he is being pilloried for lost opportunities to make further reforms during his nine years as prime minister.

While few economists believe India's problems could become as great as they were in 1991, there is broad agreement that the country needs reforms on a similar scale to open up its markets.

"My concern is that with the election still a few months away we're are not going to get the sort of reforms that the country needs," said Peter Elston, head of Asia-Pacific strategy and asset allocation at Aberdeen Asset Management in Singapore.

"All we're going to get is the reforms that are not long-term oriented, but just designed to win votes, like the food bill."

Parliament passed this week a 1.35 trillion rupees ($20.21 billion) plan to provide subsidised grains to the poor that raised concerns about spending.

Fears that the government will fail to meet its target of bring its fiscal deficit down to 4.8 percent of GDP this year were heightened by data released on Friday.

During the first four months of this fiscal year the deficit had reached close to 63 percent of the full-year target. Revenues were just 16 percent of the target, while spending stood at 31.3 percent of the target.

On Thursday, the government approved a land acquisition act that protects farmers interests by letting them get up to four times the market rate for their land, raising doubts over how much the law would help investment in infrastructure and industrial projects.

NEW DEFENDER

Raghuram Rajan, a former chief economist at the International Monetary Fund, is set to take over leading the defence of rupee when he steps into his new role as as RBI governor next Thursday.

The RBI's strategy has rested on draining cash from domestic money markets and raising short-term interest rates, but that has made it more costly for struggling corporates to raise money, putting another brake on growth.

The central bank is considering a radical plan to cut gold imports, the second biggest item after oil on the import bill, a source familiar with the RBI's thinking told Reuters,

The proposal, which has met with some scepticism, would see commercial banks buy gold from ordinary citizens and sell to precious metal refiners.

($1 = 66.7900 Indian rupees)

PM's speech: Highlights

* Rupee's share depreciation a matter of concern: PM

* Sharp dip in rupee due to certain unexpected external factors: PM

* US federal reserves tapering has caused general weakening in global currencies: PM

* We need to reduce our appetite for gold, economise use of petroleum products: PM

* Govt confident of lowering current account deficit to USD 70 billion this fiscal: PM

* Part of rupee depreciation needed adjustment as inflation in India was much higher than advanced countries: PM

* RBI and govt have taken number of steps to stabilise rupee: PM

* Government not contemplating capital controls: PM

* Sudden decline in exchange rate certainly a shock, which will be addressed by other measures not by resorting to capital controls or reversing reforms: PM

* Growth in first quarter of 2013-14 likely to remain flat: PM

* Govt will do what ever is necessary to contain fiscal deficit at 4.8 pc of GDP: PM

* Growth will pick up in the second half of the current fiscal: PM

* Depreciation of rupee and rise in oil prices will put further upward pressure on inflation: PM

* Fundamentals of Indian economy continues to be strong: PM

* Foreign exchange reserves at USD 278 bn more than sufficient to meet requirement: PM

* We will need to ensure fundamental of the economy remain strong so India continues to grow at healthy rate for many years to come: PM