Prime Minister Manmohan Singh sought to soothe worries about the economy on Friday, telling Parliament that the crashing value of the rupee was part of a needed adjustment that would make Asia's third-largest economy more competitive. He assured the House that the currency's decline would be arrested soon. (Read full statement)
Reading from a written statement, the veteran economist asserted that though the rupee was overshooting on foreign exchanges, the country was not contemplating any capital controls.
He blamed the rupee's decline partly on global factors, but also said that the "unsustainably large" current account deficit or CAD was undermining the currency. He stressed on the "need to reduce our appetite for gold, economise the use of petroleum products and take steps to increase our exports". The huge import of gold and higher costs of crude oil imports and coal were the big factors, he said, that had contributed to the CAD situation worsening.
The Prime Minister stressed on the need to create an investor-friendly environment and said while the government had so far pushed smaller reforms, it now needed Parliament's support to push through bigger ones. "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. These are not low hanging fruit and need political consensus," the Prime Minister said.
The speech was Dr Singh's first substantial comment to Parliament since the rupee suffered its steepest ever monthly fall in recent weeks, bringing back memories of a 1991 balance of payments crisis that made Mr. Singh famous.
The Prime Minister was quick to assert: "We are not at that level. We will not go to that extent."
He also explained that a declining rupee was not all bad news. "To some extent, depreciation can be good for the economy as this will help to increase our export competitiveness and discourage imports," he said.
BJP leader Arun Jaitley said in response to Dr Singh's statement that his track record as Prime Minister was of populist policies, not reform. "If you continue to follow the course, then the legacy that you leave behind will not be the legacy that you left behind as the Finance Minister. That legacy was different," Mr. Jaitley told the Rajya Sabha.
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