Rupee decline a shock but no reversal of economic reforms: PM
New Delhi: Breaking silence over the rapidly declining value of rupee, Prime Minister Manmohan Singh Thursday said the development was "certainly a shock" and it will be addressed without reversal of reforms or resorting to capital controls.
Admitting that there are several problems facing the economy and investors are nervous, he said the country will face "short-term shocks" but exuded confidence that growth in the current fiscal will rise to 5.5 percent, up from a decade's low of 5 percent in 2012-13.
Speaking in Parliament in the wake of attack over the state of economy, Singh targeted opposition particularly BJP, accusing it of hurting investor sentiments and stalling crucial reforms bills by repeatedly disrupting proceedings.
In Rajya Sabha, Leader of the Opposition Arun Jaitley hit back saying, "we don't want to hear alibis for failure."
Singh said, "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."
However, at the same time, he said, "to some extent depreciation can be good for the economy as this will help to increase our export competitiveness and discourage imports."
Observing that the country has benefited from open economy in the last two decades, Singh stressed, "There is no question of reversing these policies just because there is some turbulence in capital and currency markets."
In his identical statements in both Lok Sabha and Rajya Sabha, he attributed rupee fall to various global and domestic factors including unsustainably large Current Account Deficit (CAD), US Federal Reserve plans to taper quantitative easing measures and tensions in Syria.
"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.
In both Houses, BJP members staged a walkout expressing dissatisfaction over Prime Minister's reply. In Lok Sabha, AIADMK, Left and SAD also joined BJP in the walk out.
Singh 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".
The Prime Minister said, "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."
Acknowledging that "we are facing challenges", he said, "we have the capacity to address them. It is at times like these that the nation shows what it is truly capable of."
Stressing that fundamentals of the economy are strong, the Prime Minister underlined the need for building political consensus to push difficult economic reforms.
"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," Singh 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," he said.
In order to reduce CAD, the Prime Minister said, people would have "to reduce our appetite for gold, economise the use of petroleum products and take steps to increase our exports."
As regards the government, Singh said, the medium term objective of the government will be to reduce CAD to 2.5 percent of GDP and all efforts will be made to maintain "a macro economic framework friendly to foreign capital inflows to enable orderly financing of the current account deficit".
On whether India was nearing the 1991 balance of payments crisis, Singh stressed, "we are not at that (1991) level. We will not go to that extent... We have no reasons to believe that we are going down the hill that 1991 is on the horizon".
The country, the Prime Minister added, has a market -determined exchange rate and foreign exchange reserves of USD 278 billion, which is equal to seven months of county's import bill.