NEW DELHI Oct 20 Prime Minister Manmohan Singh
told parliament on Monday India must brace for slower economic
growth because of the global market turmoil, but the country's
banks were safe and there was no need to fear any collapse.
Following is his statement:
"I wish to make a statement on the ongoing global financial
crisis and its impact on India. Honourable members are aware
that this crisis had its origins in the United States and
spread quickly to Europe.
"While the crisis began in the housing mortgage market, it
soon extended to the money market and the credit market. As a
result, several financial institutions were pushed to the brink
"The U.S. and some other developed countries have bailed
out a number of financial institutions and banks. They have
also taken a number of unconventional steps to infuse
liquidity, recapitalise the banks and unfreeze the credit
"The financial storm has shaken confidence in the system
and precipitated a steep decline in stock markets.
"It has produced a sharp slowdown in economic activity,
with the prospect of a prolonged recession in industrialised
countries. Many observers have described this as the worst
crisis since the Great Depression of 1930s.
"India, like other developing countries, is experiencing
the ripple effects of the financial crisis. However, we have
taken a number of steps to minimise the impact.
"Our first concern was to ensure the stability of our
banking system. I am happy to inform the house that the Indian
banking system is not directly exposed to the subprime mortgage
assets. Their exposure to other problem assets is also minimal.
"Our banks, both in the public sector and in the private
sector, are financially sound, well capitalised and well
"There should be no fear of a failure of any bank. In
particular, I wish to assure depositors in our banks that their
deposits are entirely safe.
"Although our banks are safe, and they are also providing
credit in line with anticipated credit targets, the global
turmoil has led to a contraction in other forms of commercial
"External commercial borrowings, which are used by the
corporate sector have dried up, as have international suppliers
credits. This has led to a reduction in overall credit
availability in the economy even though credit from commercial
banks has expanded satisfactorily.
"This contraction produced a liquidity crisis in the
"We have taken a number of steps to address this problem.
Between July 6, 2008 to October 15, 2008, the Reserve Bank of
India cut the Cash Reserve Ratio by a total of 250 basis
"The SLR requirements were relaxed initially by 1
percentage point and subsequently an additional window of 0.5
percentage points was introduced specifically to enable banks
to draw funds to provide liquidity to mutual funds.
"As a result of these steps, the liquidity position in the
financial system has improved considerably. The call money rate
today is around 6.8 percent.
"Government also arranged to provide, in advance, a sum of
Rs.25,000 crore (250 billion rupees) to the banking system
under the Debt Waiver and Debt Relief Scheme.
"The limit of investment by Foreign Institutional Investors
in corporate bonds was increased from US$3 billion to US$6
"Earlier today, the RBI announced a 100 basis points cut in
the repo rate which is the rate at which banks can borrow
against surplus SLR securities.
"Government welcomes this decision. It will have a
beneficial effect on the interest rate structure and, in
combination with the other steps to increase liquidity, will
help to support economic activity and investment.
"It is broadly consistent with our objective to control
inflation which has already begun to moderate.
"I am happy to inform honourable members that the wholesale
price index has declined in the last three weeks and, although
the current rate is still high, the movement in the level of
prices shows a clear deceleration in the current momentum of
"We expect a further reduction in the wholesale price index
in the next two months. The government is conscious of the fact
that it is not enough to infuse liquidity.
"The liquidity must translate into expanded flow of credit
to industry, trade and business. Suitable advisories have been
issued by the RBI and the Ministry of Finance to the banks to
ensure that borrowers are provided adequate credit, including
export credit and working capital.
"Banks must also provide adequate funds in the form of
investment or credit to mutual funds and NBFCs (non-banking
financial companies) who, in turn, lend to industry, trade and
"These institutions are an important part of the larger
financial system and banks are being encouraged to provide
liquidity to ensure that there is no disruption in economic
"Both RBI and government are carefully monitoring the flow
of credit and will ensure that the additional liquidity infused
into the system translates into actual credit. We will not
hesitate to do more if needed.
"While the capital adequacy ratios of all our banks are
well above the Basel norm and above the RBI stipulated norm,
government has promised that it will help banks, which have
lower ratios, to access funds to increase their Capital Risk
Weighted Asset Ratio to 12 percent.
"Mr. Speaker Sir, The financial crisis and the economic
slowdown in the developed countries is likely to have an
indirect impact on the Indian economy.
"Fortunately, this effect will be on an underlying strong
performance. GDP growth in the first quarter of 2008/09 was 7.9
percent. During April-August 2008, exports increased, in dollar
terms by 35.1 percent.
"Foreign Direct Investment, during this period was US$14.8
billion. Gross tax revenues are on target.
"The Centre for Monitoring Indian Economy (CMIE) database
shows that a huge amount of money towards capital expenditure
is in the pipeline.
"Nevertheless, we must be prepared for a temporary slowdown
in the Indian economy. The precise impact is difficult to
estimate at this point since the depth and duration of the
global slowdown remain uncertain.
"Some estimates project GDP growth to decelerate to 7.5
percent in the current year. The most pessimistic estimates
place it at no less than 7 percent.
"Our effort will be to minimise the negative effect of the
financial crisis and, once the global situation stabilises, to
return to the growth trajectory of 9 percent.
"I would urge honourable members and the people of India to
continue to repose faith in the fundamentals of the Indian
"Honourable members will recall that, in anticipation of a
slowdown, we had stepped up public expenditure in the budget
presented on February 29, 2008.
"Our expenditure proposals were criticised at the time in
some quarters, but I am happy to note that it is now widely
acknowledged that increased public expenditure is an important
part of the solution.
"Our expenditure on education, health, National Rural
Eemployment Guarantee Programme, National Rural Health Mission,
Jawaharlal Nehru Urban Renewal Mission and other programmes
will, I believe, stand us in good stead in these difficult
"Besides, the debt waiver and debt relief amounting to
Rs.65,000 crore (650 billion rupees) to 3,60,00,000 (36
million) farmers will also greatly benefit our farmers and
enthuse them to increase production.
"Mr. Speaker Sir, India has faced challenges in the past
and has overcome them. We have the strength to overcome the
current challenges too.
"In fact, it is when India is challenged that the Indian
people rise to the occasion and convert the challenge into an
opportunity. There is no place for fear. This is the time for
unity of purpose and resolute action.
"I seek the support of all sections of this house to the
measures taken by government and the authorities.
(Compiled by Surojit Gupta; Editing by Ranjit Gangadharan)