PM makes statement in Parliament, attempt to pacify opposition

Manmohan Singh Friday made statement in parliament on economic crisis.

He held external factors such as tensions over Syria and the prospect of US Federal Reserve tapering its policy of quantitative easing responsible for weakness in emerging market currencies.

He said large account deficit and other domestic factors had adversely affected rupee value .

He emphasized on reducing current account deficit to bring about an improvement in the functioning of economy.

He proposed reduction in gold buying and use of petroleum products, and at the same time taking steps to increase exports.

In his statement, Singh said, “Since 2008, there has been a deterioration, mainly on account of huge imports of gold, higher costs of crude oil imports and recently, of coal”.

Exports, particularly of iron ore have been drastically affected due to weak demand in major markets.

He said Finance Ministry has set target of below $ 70 billion current account deficit this year and claimed that results were reflecting with a declining trade deficit in June and July. Short term target of CAD is kept at 2.5 per cent of GDP.

Singh held that depreciation in rupee encouraged exports in many sectors and expected to feel the effect more strongly in exports and in the financial position of exporting sectors resulting in correction of CAD to some extent.

Inflation in India has been much higher than in the advanced countries. Therefore, it is natural that there has to be a correction in the exchange rate to account for this difference. To some extent, depreciation can be good for the economy as this will help to increase our export competitiveness and discourage imports.

Singh expected growth to be flat in first quarter of 2013-2014 and a pick up on account of good monsoon.

He also assured that the government will do whatever is necessary to contain the fiscal deficit to 4.8% of GDP this year and would take effective steps to ensure subsidies reach the poor which is the most growth-friendly way to contain the deficit.
“The Reserve Bank will therefore continue to focus on bringing down inflation. The favourable monsoon and the anticipated good harvest will help bring down food prices and ease the task of controlling inflation. Even while we go about doing what is necessary, it is important to recognize that the fundamentals of the Indian economy continue to be strong. India’s overall public-debt to GDP ratio has been on a declining trend from 73.2% of GDP in 2006-07 to 66% in 2012-13. Similarly, India’s external debt is only 21.2% of our GDP and while short-term debt has risen, it stands at no more than 5.2% of our GDP. Our foreign exchange reserves stand at US$278bn, and are more than sufficient to meet India’s external financing requirements, “said the PM.

On banking sector, he said the Indian banking sector has seen some rise in bad loans. He believed there is liquidity problem. Many important projects have been delayed which, if come to stream, will generate revenue and repay loans. 

He stressed on doing difficult reforms such as reduction of subsidies, insurance and pension sector reforms, eliminating bureaucratic red tape and implementing Goods and Services Tax.

He held political parties responsible for holding up many laws. He urged states to come to an agreement for reforms such as Goods and Services Tax which is believed to be essential for restoring growth and boosting revenues.

He emphasized on the need to have strong economy fundamentals to ensure healthy rate of growth.