adminNEW DELHI. – India’s premier, seeking to steady investor nerves over the rupee’s plunge, said last week there was no danger of a repeat of the nation’s 1991 balance of payments crisis, and forecast a pick-up in economic growth. Manmohan Singh, addressing parliament for the first time since the rupee went into a tailspin last month, called the currency’s worst slide against the dollar in nearly two decades “certainly a shock”.
But there is “no reason for anybody to believe we are going down the hill and 1991 is on the horizon”, Singh told lawmakers.
In 1991, a foreign-exchange strapped government pawned its gold reserves in exchange for loans from the International Monetary Fund.
Singh called India’s record current account deficit – the widest measure of trade that has undermined the currency – “unsustainably large”.
But actions by policymakers’ including restricting currency outflows and reducing gold imports to narrow the trade gap would bear fruit, he said.
India is faced “with important challenges but we have the capacity to address them – it is at times like these a nation shows what is truly capable of”, he said.
After Singh’s speech, the rupee was trading at 66,4 to the dollar, comfortably stronger than the record near 69 rupees touched Wednesday, while shares were up 1,25 percent at 18,631 points.
Economic growth will pick up in the second half of the year, he said, and added the rupee’s plunge could prove a blessing by boosting export competitiveness.
But he warned Indians to brace for higher inflation due to costlier import prices, especially of fuel, after the rupee’s crash to lifetime lows.
Singh, a renowned economist hailed for lighting the fuse for India’s fast growth in the 1990s as finance minister, has been under fire as premier with his government hit by a string of corruption scandals that have sapped foreign investor confidence.
He skirted opposition charges that the rupee’s woes were due to government mismanagement and blamed the fall on tensions over Syria and a recovery in the US economy which is expected to reverse the flow of funds into emerging markets.
While he did not name the US, he suggested that in pursuit of a “more equitable world order” wealthy nations should pay more heed to the effects of their monetary and fiscal policy actions on emerging nations.
India, Indonesia and many other emerging markets are heavily dependent on foreign capital inflows to fund their balance of payments.
He also said that opposition parties must co-operate to pass important reforms to reduce subsidies, eliminate red tape and streamline the nation’s taxation system to put India back on the path of “stable, sustainable growth”.
On Thursday, parliament passed a land-acquisition measure intended to speed up industrial development and spur economic growth.
But business groups said the measure will have the opposite effect as it would give farmers up to four times the market rate for their land, making it too costly to acquire.
Growth data for the first financial quarter to June, due later Friday, would be broadly unchanged from the previous quarter’s 4,8 percent, Singh said, but the economy would accelerate in the second half.
“Growth will pick up in the second half barring extreme unforeseen eventualities,” he said, adding strong monsoon rains would boost harvests and help reduce food inflation.
The government has forecast growth of around 5,5 percent this year, up from a decade low of 5 percent last year – but most private economists expect it to be sub five percent.
“The stabilisation process which should support the value of the rupee is underway,” Singh added.
Foreign exchange markets have a “notorious history of overshooting, this is what is happening in relation to the rupee”, he said, adding, it is important to recognise “the fundamentals of the Indian economy continue to be strong”. – AFP.
Online Reporter