New Delhi: Admitting the economy was going through a difficult period, Prime Minister Manmohan Singh on Friday assured the industry that government will leave no stone unturned to ensure a rebound.
Singh attributed the rupee decline to widening Current Account Deficit (CAD) and global factors and hoped that the steps taken by the Reserve Bank to arrest fall of domestic currency would be reversed with the easing of speculative pressure.
As regards the economy, he said though basic fundamentals are sound and stable, the growth rate in the current financial year was likely to be lower than 6.5 percent estimated at the time of presentation of the Budget in February.
"We will leave no stone unturned to ensure that the economy rebounds. I appeal to each one of you not to be overcome by negative sentiment," Singh said while addressing the annual meeting of industry body Assocham.
"Let me begin by stating upfront that we, like most other countries, are going through a difficult period... It (industry) is looking to the government to bring the economy back to a higher growth path. This is a legitimate expectation and is also upper most in our mind," he said.
The Prime Minister assured the industry the government will remain pro-active in ensuring economic rebound.
"When things are going well, government should interfere as little as possible. When things go badly, as they seem to be at present, it is the responsibility of the government to become pro-active," Singh said.
Noting that the most immediate cause of worry is the recent volatility in foreign exchange markets, Singh said, much of this was due to global markets reacting to the likelihood of a withdrawal of quantitative easing by the US Federal Reserve.
"Large volumes of funds were withdrawn from emerging markets and there was a depreciation in many emerging market countries... We too experienced a sharp depreciation in the rupee. In our case, it was perhaps exacerbated by the fact that our Current Account Deficit (CAD) had expanded to 4.7 percent of GDP in 2012-13," he said.
The government, Singh said, was committed to bringing the CAD under control by addressing both the demand side and the supply side of the problem, especially to contain demand for gold and petroleum products.
"Gold imports declined sharply in June, and I hope they will stay at normal levels from now on," he added.
On petroleum sector, he said, rupee depreciation has to some extent neutralise the calibrated steps to reduce under- recoveries of the oil marketing companies.
However, he added, "our policy of adjusting prices to progressively eliminate under recovery remains".
On the supply side, he hoped, depreciation of rupee would give push to export efforts and added, the government has been trying to remove the constraints in export of iron and other ores which saw a considerable decline over the last one year.
"Looking ahead, the rupee depreciation will help Indian industry to compete effectively with other countries, both in export markets and against their imports in our markets," Singh said.
Talking about the Reserve Bank's recent initiatives to arrest rupee decline, Singh said, these steps were not meant to signal increase in long term interest rates.
"They are designed to contain speculative pressure on the currency. Once these short term pressures have been contained, as I expect they will be, the RBI can even consider reversing these pressures," he said.
Singh further said that the government is on way to conclude a free trade pact with the European Union and hoped that industry would take advantage of the agreement to increase its competitiveness.
India has already signed free trade agreements with Korea, ASEAN and others.
On CAD, Prime Minister said, the government and RBI will use all policy instruments available - fiscal, monetary and supply side interventions -- to reduce it.
"Ideally we should bring the CAD down to 2.5 percent of GDP. It is not possible to do this in one year, but I expect that the current account deficit in 2013-14 will be much lower than the 4.7 percent level recorded last year. It will decline further next year," Singh said.
Speaking about the economy, Singh said: "We have had one bad year. I assure you we will get out of it," adding that the fundamentals are sound and stable and medium prospects remain optimistic.
The Prime Minister further said that the government would stick to the fiscal consolidation road map and restrict the deficit to the target of 4.8 percent of the GDP in the current financial year.
Listing the reforms initiatives and measures taken to boost infrastructure, Singh said, the impact of these would become manifest in the second half of the current financial year.
"We also need to take steps that will revive the momentum of investment," he said.
Referring to power sector woes, Singh said, the government has resolved the problem of coal shortage and fuel supply agreements are being signed to ensure that all plants that are commissioned by 2015 have adequate supplies of coal.
The Prime Minister further said projects that have been held up for lack of regulatory approvals are being expedited. He also said a separate cell has been set up to identify big ticket projects and to see how they can be helped through various hurdles.
Singh further said infrastructure is absolutely critical for India's medium term growth prospects and the government was monitoring progress in this area on a quarterly basis.
Taking a dig at political critics, Singh said they focus on the experience of one bad year.
"This makes for good television but it is a very distorted picture," he said, adding, the average growth rate in the 8 years of the UPA from 2004-05 to 2012-13 was 8.2 percent as against 5.7 percent in the previous eight years.
Talking about poverty reduction, the Prime Minister said that the percentage of population below the poverty line declined at 0.75 percent per year before 2004-05.
It has fallen more than 2 percent per year between 2004-05 and 2011-12, he added.