Prepare for minor slowdown but your money is safe: PM (Lead)

October 20th, 2008 - 7:29 pm ICT by IANS  

New Delhi, Oct 20 (IANS) The global financial crisis has slowed India’s growth, but the government and the central bank are taking steps to cushion its impact even as people’s money is safe in banks. This is the message Prime Minister Manmohan Singh sought to convey in a suo mutu statement in the Lok Sabha Monday.”There is no place for fear. This is the time for unity of purpose and resolute action,” the prime minister said in the 10-minute statement in the lower house of parliament after internal deliberations within the government whether his remarks at this stage will calm nerves or add to the worries.

“I assure depositors that their money is safe.”

The prime minister’s remarks came against the backdrop of a key Indian equities index crashing nearly 25 percent in the past month and over 45 percent in 52 weeks even as the rupee dropped to its lowest level against the dollar in six years.

This apart, the growth of industrial production at 1.3 percent in August is the lowest in a decade, the economy has shown some distinct signs of slowdown, while inflation has continued to rule at double-digit levels - statistics which no government likes, especially when the country goes into election mode.

Yet, the prime minister was candid enough to admit that the Indian economy was, indeed, facing the ill-effects of the global economic slowdown, particularly in the form of a liquidity problem and lower growth.

“The financial crisis and the economic slowdown in the developed countries is likely to have an indirect impact on the Indian economy,” he said, and added: “We must be prepared for a temporary slowdown in the Indian economy.”

But his optimism was intact. “Fortunately, this effect will be on an underlying strong performance.”

The prime minister said the estimates of India’s growth now were said to be in the region of 7.5 percent and even by the most pessimistic standards, it was no less than seven percent, which was not low by any global standard.

“We hope to minimise the negative impact of the crisis and, once it is settled, to restore the nine percent trajectory,” he said.

Manmohan Singh, who was has served as the governor of India’s central bank and the finance minister, said the Indian banking system also remained insulated and well capitalised to overcome any adverse impact.

“Indian banking system is not exposed to mortgage lending crisis in the US. Our banks, both in the private and public sector, have stable capital adequacy. The banks are being encouraged to provide liquidity to ensure that there are no disruptions in economic activity.”

According to the prime minister, the steps taken so far include Rs.25,000 crore (Rs.250 billion, or $5.5 billion) given to banks against their waiver of loans to farmers in distress, so that they can lend to the corporate sector.

He also said that measures taken by the central bank, like the cut in a key lending rate by 100 basis points Monday, will have a beneficial effect. He also said inflation had declined in recent weeks and the movement showed a clear deceleration.

“We are optimistic that there will be a further reduction in WPI (wholesale price index) in the next two months.”

The prime minister said the crisis, which was being referred to as the worst since the Great Depression of the 1930s, has not exposed the Indian banking system to it directly.

Tracing the roots of the global crisis, the prime minister said it had started with the housing mortgage industry in the US and spread to the money and stock markets, but added that the Indian financial system was not directly exposed to it.

“India, lie other countries, is experiencing its ripple effects,” he said and added that some countries like the US were taking unconventional steps to avert the crisis.

“India has faced challenges in the past and has overcome them. We have the strength to overcome the current challenges too,” the prime minister maintained.

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