Indian Prime Minister Manmohan Singh sought to soothe worries about the Indian economy on Friday (August 30), 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.
"We must realise that part of this depreciation was merely a needed adjustment. Inflation in India has been much higher than in the advanced countries, therefore it is natural that there has to be a correction in the exchange rate to account for this difference. To some extent depreciation can be good for the economy as this will help to increase our export competitiveness and discourage imports," Singh told the lower house.
The speech was the veteran economist'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 Singh famous.
Singh promised that the government would reduce the "unsustainably large" current account deficit undermining the currency.
Singh said the government would not back down on the policy of open market economy and resort to capital controls.
"The Reserve Bank and government have taken a number of steps to stabilize the rupee. Some measures have given rise to doubts in some quarters that capital controls are on the horizon. I would like to assure the house and the world at large that the government is not contemplating any such measure," Singh added.
Singh said he expected India's economy to pick up in the second half of fiscal year 2013/14.
"Growth has slowed down in recent months. I expect growth in the first quarter of 2013-14 to be relatively flat but as the effects of good monsoons kick-in, I expect it to pick up. There are many reasons for this optimism. The decisions of the cabinet committee on investment on reviving stalled projects will start bearing fruit in the second half of the year," Singh said.
He added that the Reserve Bank would focus on reducing inflation.
"Depreciation of the rupee and rise in dollar prices of petroleum products will no doubt lead to some further upward pressure on prices. Reserve Bank will therefore continue to focus on bringing down inflation. The favourable monsoon and the anticipated good harvest will help bring down food prices and ease the task of controlling inflation," said Singh.
Presented by Adam Justice