Following is Prime Minister Manmohan Singh's opening statement during a meeting with leading industrialists here Monday on the global financial crisis and its impact on the Indian economy.
"We are meeting at a time when the world economy is going through an unprecedented crisis which started in the financial sector in the US but has now spread globally. The financial crisis has exacerbated a global downturn that was expected earlier but is now likely to be more severe and prolonged.
A crisis of this magnitude was bound to affect our economy and it has. International credit has shrunk with adverse effects on our corporates and our banks. Global uncertainty is also tending to dampen investor sentiment. All countries have recognized the severity of the problem and its likely fallout, and are taking strong steps in a coordinated fashion. We have done the same and I wanted to share with you the approach we will follow.
Our first priority was to protect the Indian financial system from possible loss of confidence or contagion effects. I am happy to say that the direct exposure of our banks to problem assets is minimal. Our banks are well regulated and also well capitalized. I think we have successfully conveyed to our people that our banking system, both in the public and the private sector, is safe, and the government stands behind it and that no one should fear for the safety of bank deposits.
We have also taken several measures to infuse liquidity into the system to ensure adequate flow of credit. We have reduced the cash reserve ratio by 350 basis points. We have also reduced the SLR (statutory liquidity ratio) and the Repo rate. Special facilities have been introduced that will allow banks to obtain finance from the RBI (Reserve Bank of India) to meet the needs of debt mutual funds or NBFCs (non-banking finance companies).
I believe these steps have made a substantial difference. We recognize that the situation is abnormal and we need to be constantly on the alert. The situation is being watched on a day to day basis and more steps will be taken if required.
With these measure I am confident that our financial system will be stable and function well. However, we are also concerned that the negative impact on the real economy must be minimized. The additional liquidity provided or the reduction in Repo rate will help to provide credit at reasonable rates.
The public sector banks have been instructed to ensure that they act counter cyclically in this situation to counter the general erosion of confidence. We are able to act more boldly because our efforts to contain inflation have begun to be effective. Movements in the WPI (wholesale price index) over the past six weeks suggest a definite abatement of inflationary process.
Some duty cuts have been announced to provide relief to civil aviation sector and the iron and steel industry.
Overall, the government is closely monitoring the evolving macro economic situation and is fully alive to its responsibilities to sustain the growth momentum of the economy at a reasonable level. Expanding investment in infrastructure can play an important counter cyclical role in this situation.
We will review projects and programmes in the area of infrastructure development, including both pure public sector projects and public private partnership projects, to ensure that their implementation is expedited and they do not suffer from constraints of funds. We are in any case expanding expenditure in the social sectors i.e. health and education and in rural and agricultural development and progress in these areas will be closely monitored.
I am happy to state that our efforts in reviving the momentum in agriculture have clearly bore fruit and we have seen a growth rate of around 4.7 percent in the past three years and this is expected to continue in the current year. Taken together, these efforts will help to maintain the pace of both growth and stability in the economy.
I invite all of you, to join in the effort to convert this global crisis into an opportunity for India. I trust you will continue to show the confidence and dynamism that had taken our manufacturing growth to all time highs and the rate of growth of the economy to a level that was considered unimaginable, even a decade ago.
Our high savings and investment rates have been a great strength in the recent past and we hope that the Indian corporate sector will not let the global crisis shake its confidence. While every effort needs to be made to cut costs and raise productivity, I hope there will be no knee jerk reaction such as large scale lay-offs which may lead to a negative spiral.
Industry must bear in mind its societal obligations in coping with the effects of this global crisis. Government and industry must act in a true spirit of partnership to meet the challenges that lie ahead.
I would like to assure each one of you that the government will take all necessary monetary and fiscal policy measures on the domestic front to protect our growth rates. On the international front, we are working closely with other countries to ensure coordinated policy action and increased development cooperation for the containment of this crisis.
We will seek reform of the international financial institutions, and improved regulation and supervision, to prevent recurrence of such crises. I welcome you comments and suggestions regarding the strategy we should adopt, both in our international negotiations and in the domestic arena."