A delay in potential US military action in Syria and improving economic data from China and Europe boosted appetite for riskier assets on 2 September' 2013, lifting world shares and sending the yen lower. Oil prices also fell after US President Barack Obama announced at the weekend that any military action against Syria in response to last month's chemical weapons attack would wait until lawmakers had had a chance to vote on the plan. The delay pushed down oil by more than $1 a barrel, and gold by more than 1 per cent, while the dollar rose to a one-month high against the safe-haven yen. "Any risk of strikes from some Western countries on Syria have decreased at least near-term," Patrick Jacq, European rate strategist at BNP Paribas said. "The risk premium linked to geopolitical events has decreased, so risk appetite probably is resuming somewhat." Global Economy ShinesWith an imminent attack on Syria off the table for now, investors focused on the latest economic data, which showed China's factories posting their best performance for more than a year in August, easing fears of a sharp slowdown. Euro zone factory activity rose at its fastest pace in over two years during August though the gains were still only modest and unemployment remained stubbornly high. There was encouraging news from struggling euro zone member Spain, however, where manufacturing grew in August for the first time since April 2011. Elsewhere, India notably bucked the trend with a Purchasing Manager's Index (PMI) showing manufacturing activity in Asia's third-largest economy shrank in August for the first time in over four years, adding to the country's economic malaise. "Just about the whole world seem seems to be surprising on the upside on PMIs except India," Mike Ingram, market commentator at BGC Partners, said. Shares RecoverMSCI's world equity index was up 0.5 per cent after the data, ending a run of four consecutive weekly losses made as investors positioned for the US Federal Reserve to begin reducing monetary stimulus, perhaps at its meeting later this month. Earlier MSCI's broad index of Asia-Pacific shares outside Japan advanced 1 per cent, hitting a two-week high and adding to a 2.1 per cent gain over the previous two sessions. Tokyo's Nikkei rose 1.4 per cent. European shares reflected the brighter economic outlook. gaining 1.5 per cent in early trading, with Britain's FTSE 100 up as much as 1.3 per cent and Germany's DAX up 1.6 per cent at one point. A holiday in the US and a week of major central bank meetings capped by the all-important US payrolls report was likely to keep activity in check though. Among the major currencies, the easing in Syrian tension reduced demand for the Japanese yen which is often sought for its safety in a time of crisis. This saw the dollar gain 1.2 per cent to 99.38 yen, its highest level in a month. The brighter economic news from China lifted the Australian dollar, which is seen as a proxy for Chinese growth because of the two countries' close trade ties. It rose 0.8 per cent to $0.8970. But the Indian rupee edged down 0.3 per cent to 65.90 to the dollar after two days of gains, and was not far from a record low of 68.80 per dollar hit last week. Indonesia's rupiah , which has also been under pressure lately, was down 0.2 per cent after the country logged a wider-than-expected trade deficit. Buoyed by the factory activity data from top-consumer China, copper prices rose 2.2 per cent and were on track to end a four-day losing run. Oil and gold prices fell as investors unwound their positions because the US has postponed a military strike against the Syrian government. Brent crude prices dropped 0.5 per cent to below $113.50 a barrel, on track for a third day of declines. It had touch a six-month peak of $117.34 last week on concerns that US military intervention could lead to retaliation and disrupt crude supply in the Middle East region, which pumps a third of the world's oil. Safe-haven gold dipped 0.25 per cent to around $1,392 an ounce after falling as low as $1,379.44, a one-week trough, earlier in the session.(Reuters)
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The BRICS bloc of large, emerging economies has agreed on the structure of a proposed development bank with $50 billion in capital, but ironing out "difficult" details may take months, Russian Deputy Finance Minister Sergei Storchak said.Officials from Brazil, China, India, Russia and South Africa agreed in early August that the bank's capital should come from three payment categories, including subscriptions, Storchak told journalists in remarks for publication on Monday.The establishment of the development bank aimed at providing funds for infrastructure projects has been slow in coming, with prolonged disagreement over funding and management of the institution."We must assume that the bank will not start functioning as fast as one could imagine," Storchak said. "It will take months, maybe a year."At the summit of the Group of 20 developed and developing nations this week in Russia's St. Petersburg, BRICS leaders will meet in an unofficial format, Storchak said, to discuss the progress on setting up the bank and a joint reserve fund.The issues of division of the capital, payment of the capital, the location of the bank and the bank's management still need to be decided, Storchak added."These are systemic themes, complicated, (and) negotiations are difficult," he said, adding that he hopes that some decisions will be made soon.The group has struggled to take coordinated action after an exodus of capital from Brazil, Russia, India, China and South Africa prompted by an expected scaling back in US monetary stimulus raised fears about the health of their economies.On Friday, India said it was seeking support from other emerging economies for coordinated intervention in offshore foreign exchange. The rupee has shed a fifth of its value against the dollar in the past three months.But Brazil rejected outright involvement in any intervention and other major emerging economies, including Russia, would not comment.In June, at the G20 finance ministers meeting in Moscow, the group failed to take joint action to withstand spillover effects from US policies.The establishment of the group's development bank was first proposed in 2012, but approve only earlier this year at a BRICS summit in Durban, South Africa.A Brazilian government official directly involved in the negotiations on BRICS development bank said members are still discussing how much each country will put in.He said Brazil supports the idea of each country contributing $10 billion for the new bank."There are some countries that want a different structure," said the official, who asked for anonymity because he was not allowed to speak publicly about the matter. "It's not going to be an easy negotiation, we are not there yet."China, the largest BRICS economy worth $8.2 trillion and a growing global influence, had earlier proposed $100 billion capital and sought a bigger share, igniting disagreements and slowing negotiations.Brazil and other BRICS peers have launched a series of multi-billion dollar infrastructure projects to refurbish dilapidated airports, roads and railways and keep their economies going. The new development bank, in principle, would help finance these projects.(Reuters)
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Late last month, with their doors shut to the mounting market panic outside as investors fled the country, India's cabinet ministers gathered to give final approval to a cheap food scheme for the poor.It was hardly a difficult decision for a government that needs to shore up its sagging popularity before elections due by next May. But officials familiar with the discussion say there was one dissenting voice over what is now destined to become one of the world's largest welfare programmes.Finance Minister P. Chidambaram, already struggling to convince doubters that he will keep the country's hefty fiscal deficit under control, made a last-minute attempt to trim the huge cost of the plan, estimated at about $20 billion a year.Chidambaram's ultimate failure to win colleagues around - despite his famed eloquence - is emblematic of the predicament he faces: he must stop investors heading for the hills as economic growth skids to its slowest pace in a decade, but he is surrounded by politicians who haven't grasped that there is a crisis at hand and want to spend their way to the ballot box.In many ways, Chidambaram has been grappling virtually alone with the economic emergency since he became finance minister for a third time 13 months ago.Cabinet colleagues, wayward allies of the UPA and an obstructive opposition have together stood in the way of bold steps that might have averted this year's collapse of confidence in the India story.It is a crisis within a crisis.With elections looming, that won't change anytime soon, which means Chidambaram will find it difficult to take robust policy action if the situation goes from very bad to worse."If parliament is not able to point to the direction in which the country's economy will go, parliament is not able to agree on, say 10 steps which the government should take today ... what kind of a message will it send to the rest of the world?" he asked members of parliament (MPs) in frustration last week as the rupee tumbled ever-lower into uncharted territory."The fact is, the polity of this country is divided on economic policies and that is understandable ... My plea to everyone, despite our differences: can we agree upon some measures which have to be taken in order to lift the country's economy from what it is today?" he said.Chidambaram was not available for an interview for this story.Authorities "Still Don't Get It"An almost comic spectacle of the country's policy deadlock played out in parliament last month as the monsoon session of the legislature got under way.MPs were so busy bawling at each other over issues that might sway voters - a corruption scandal, the partition of Andhra Pradesh and communal violence - that over its first seven days the Lok Sabha spent just 12 minutes on legislative work and there were 11 sittings before a single bill was passed.While New Delhi appeared nonchalant at the economy's bind, investors were not: they fled. The rupee has tumbled more than 20 per cent since May and the fall in August was the biggest for any month on record.In a matter of a few years, India has turned economic expansion of 8-9 per cent into growth now struggling to reach 5 per cent. The current account, the broadest measure of a country's international trade, has a record deficit, the manufacturing sector is shrinking, and credit ratings agencies are hovering."Our primary concern is that the policy authorities still don't 'get it' - thinking this is a fairly minor squall which will simmer down relatively quickly with fairly minor actions," said Robert Prior-Wandesforde, head of Asia economics research at Credit Suisse.For sure, India is one of several emerging markets from Brazil to Indonesia hit by a flight of capital due to rising US interest rates ahead of an expected tapering of the Federal Reserve's massive bond-buying programme that unleashed liquidity across the world. It is doubtful that any policy action in New Delhi could do much to turn the tide.Nevertheless, India's response has been less decisive than other emerging market economies. Most steps taken so far to address the problem have been small, such as lowering the cap on transfers of money abroad and slapping import duties on flat-screen TVs, measures aimed at reining in the world's third-largest current account deficit that is approaching $90 billion.Some proposals have smacked of desperation. One minister last week suggested curbing diesel consumption by the railways, a bigger economic lifeline than in most countries, and the armed forces to cut import costs, an idea that got no traction.The Economic Times reported on Saturday that the Reserve Bank of India (RBI) wants Hindu temples to deposit their hoards of idle jewellery for conversion into bullion to meet demand for gold in the world's biggest consumer of the precious metal. The idea is that such a measure would reduce import demand for gold.Cabinet WranglingThe last time Chidambaram was finance minister, in 2004-2008, growth was motoring at a near-double-digit clip: he used to call himself a "lucky finance minister" because of the neat timing. But fortune has hardly been on his side since returning to the job last year.Aides say he has come under huge stress in recent weeks, but in public he has kept his cool, not surprising for the Harvard-educated lawyer who sharply told an interviewer earlier this year: "When did self-confidence become a vice?"Financial markets have long had just as much faith in the smooth-talking politician as he has in himself. They remember his pro-business 'dream budget' of 1997 that brought taxes down, and when he returned to the finance ministry last year investors were thrilled, anticipating a new push for economic reform to end years of policy drift and an economic slowdown.A short burst of reforms, including the opening up of retailing and aviation to foreign investors, followed. Chidambaram also succeeded in bringing down the fiscal deficit to 4.9 per cent of GDP in fiscal 2012/13 from 5.8 per cent, helping avert a sovereign credit rating downgrade.However, the reform drive soon lost momentum, in part because of the main opposition party's recalcitrance in parliament.But resistance within the Congress was as much to blame.Two senior ministers leaned on Prime Minister Manmohan Singh earlier this year to reverse a decision allowing 100 per cent foreign direct investment in domestic pharmaceutical companies, a finance ministry source said. But Chidambaram pushed back, saying that if they had objections they should take them to the cabinet rather than surreptitiously lobbying the prime minister.At a meeting in July, three ministers got together to push through extra funding for roads in the far-flung northeast and Jammu and Kashmir, overriding cost concerns raised by the finance ministry.And last month, Chidambaram wanted his colleagues to stick to the original version of the food security bill under which 18 out of 29 states would get less wheat and rice than allotted to them under an existing public distribution system because of a drop in the number of poor there.But other members of the cabinet resisted him, warning that the opposition could block the landmark bill - which guarantees 810 million Indians grain at a fraction of market prices - when it got to parliament. Their argument carried the day, at an additional cost of 50 billion rupees a year."There is no point fighting it beyond a point," said a finance ministry official, recalling the wrangling over the legislation. "What we have said is that it's fine: you do this because that is the demand of the constituents, but you will have to cut somewhere."Many in the left-leaning Congress led by Sonia Gandhi believe that the fruits of fast growth since India unshackled the economy from the grip of the state in the early 1990s were not shared with the country's millions of poor, and that electoral success lies in more distribution.Critics say the problem is that a new group of aggressive second-rung leaders in the Congress, pushing for 'inclusive growth', are setting out new principles of economic policymaking, creating further dissonance within government."Individual ministers and ministries are all running on their own. Nobody is looking at the national interest," said former Home Secretary G.K. Pillai, who served with Chidambaram when he was brought in to fix homeland security after the 2008 attack by militants on Mumbai."Everyone has his own view, which is why you have different interpretations of cabinet decisions. The lack of leadership is telling."Political ConstraintsThe criticism may seem odd. Prime Minister Singh took bold steps in 1991 as then finance minister to set India on a high growth path after a balance of payments crisis, earning himself a place in history as the architect of India's emergence as a global economic power.Now, he is routinely derided by the opposition and media for the policy drift of recent years. The 80-year-old broke his silence on Friday after weeks of market turmoil, telling parliament that whatever critics might say he still enjoys wide respect around the globe.But when it comes to dealing with the currency crisis, markets will be hanging on every word of Chidambaram, not the prime minister. Congress insiders say the finance minister plays a dominant role in cabinet meetings, often calling the shots even as the prime minister sits by.The stakes are high for Chidambaram himself, who has been talked about as a potential successor to Singh if his party wins the election and Rahul Gandhi, the heir to the Nehru-Gandhi dynasty's mantle, insists on a behind-the-scenes party role for himself - like his mother, Sonia.The baby-faced Chidambaram, who is from a wealthy business community in Tamil Nadu, has a reputation for intellectual prowess, but also for arrogance that has made him enemies within his own party and on occasion alienated public opinion.Political constraints ahead of the election have so far made potentially unpopular policy steps difficult to take, but if Chidambaram is indeed eyeing the premiership he may be reluctant to press for them himself.Sanjaya Baru, a former media adviser to the prime minister, wrote in the Indian Express that the political climate has made Chidambaram less enterprising than he was in his first stint as finance minister in the 1990s and less confident than he was in the second."Now placed firmly in a potential line of succession to the top and with his hands constrained by the party's need to prevent any political mishap before an election, P. Chidambaram Mark-3 has proved to be more risk-averse," he said.(Reuters)
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Student Mikael Haris is wrestling with the sort of question confronting others across India, including companies, investors and banks, following the 18 per cent slump in the rupee this year. With plans to study for a masters degree in marketing in London from this month, he is trying to decide whether to pay his course fees up front and secure a discount, or to spread them out in the hope that a rebound in the rupee will ultimately reduce his costs. "We are kind of speculating how to pay the fee, to see whether the rupee will regain its strength. It is a strategy that makes you think, how to lower your expenses," Haris said. The slump in the rupee as the country struggles with decade-low economic growth and a record current account deficit has hit confidence across the country and among international investors. For the 800,000 or so students who go overseas to study each year, the main question is whether they can still afford to do so as their costs in rupees have risen by as much as 20 per cent. The top three destinations to study are the United States, Britain and Australia. The Associated Chambers of Commerce and Industry of India (ASSOCHAM) estimated overseas Indian students spend the equivalent of about $15 billion a year to pursue their studies. "If the currency continues to depreciate, it will certainly put a doubt in the mind of students on whether to look at going abroad next year or not," said New Delhi-based Ajay Mittal, a director at International Placewell Consultants Pvt Ltd, a student placement company. "If the slide does not stop it may affect the January or next September admissions," Mittal said. "One Extra Beer"Students already studying overseas are looking to cut costs, rely on savings or find work to cover their shortfalls. Pooja Raman, who is studying International Business Law at the National University of Singapore, is worried about paying off her education loan after her expenses rose by 15 percent in recent months. Most Indian students take loans for their studies overseas. "If the rupee continues on this devaluation path, it would get difficult to repay it within the given time and I might have to take another one," Raman said. Adding to the pressure, state-run banks have not raised the maximum limit on education loans to account for the fall in the rupee, meaning what used to be full-course funding now covers just a proportion. Foreign students are prized by US academic institutions, particularly at the undergraduate level, because they often pay full tuition and board rather than counting on financial aid from universities, giving them an economic impact that outweighs their numbers - less than 4 per cent of US university enrolment. So far, U.S schools say there has been no significant drop off in the number of Indian students, the second-largest population of foreign students after the Chinese. That does not mean there will not be a fall though, said Gary Hamme, associate vice president for enrolment management at the Florida Institute of Technology. "If this continues, it's going to get tough and obviously we would be concerned about the number of new students," he said. Foreign students make up about a third of the total enrolment at the institute and Indian students are among the top three most represented foreign nationalities. Shiva Balasubramanian from Mumbai, who is studying computer engineering at Arizona State University, says he is cutting his daily expenses to cope. "You avoid buying exotic vegetables, and that one extra beer, for example," he said. "It's a test of management in daily life." "Bite The Bullet"In Australia, many look for part time work in restaurants, retail stores, gas stations and administration. "Indian students would come to class often very tired, and fall asleep in class, because when you look at it they're often working two or three part time jobs, (sometimes) illegally," said Phil Honeywood, executive director of the International Education Association of Australia. The rupee slump has also caught out those who had been cautious with budgeting. Ridhima Tomar, who will pursue a degree in Social Policy and Development at the London School of Economics this month, thought she had made a conservative calculation on the exchange rate at 95 per pound. The rupee now trades at 103 and she estimated her costs have risen 20 per cent compared with last year. "I am done with all my formalities and booked my tickets and got my visa. I guess I will have to bite the bullet," Tomar said. (Reuters)
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Fighting for his reputation as the architect of India's economic reforms, a combative Manmohan Singh on Friday, 30 August, made a scathing attack on the BJP in the Rajya Sabha, accusing them of hurting investors' sentiment by repeatedly disrupting Parliament, triggering a war of words.Insisting that the current growth and currency crunch was no repeat of the 1991 balance of payments crisis that made him a household name, the Prime Minister asked the principal opposition party to recognise its responsibility of ensuring smooth functioning of Parliament asserting that it was not the responsibility of the government alone as contended by the BJP."Building of consensus is both the responsibility of government and the opposition. I wish the conduct of the opposition party was consistent while letting the ruling party govern," he said responding to clarifications on his statement on the sliding rupee. Read Also: Economic Growth Slips To Lowest In 4 YearsAs finance minister 22 years ago, he deftly ushered in reforms of a state-shackled economy that helped launch years of rapid growth, earning himself a place in history as the man behind India's emergence as a new economic power.Now 80 years old and heading into his last months as prime minister before elections, the growth bubble has burst. The latest GDP figures on Friday showed an economy growing at just 4.4 per cent, the weakest pace since the global financial crisis and a far cry from ambitions for growth of 8-9 per cent. The country is saddled with hefty fiscal and current account deficits, and the rupee has fallen like a stone in recent weeks to successive record lows.Industry body CII said the GDP figures for the first quarter clearly show that the economy continues to be in the throes of a slowdown. Expressing concern that there are no clear indications that the economy has bottomed out, CII said without getting panicky, the concern on the economy can hardly be overstated. "The economy needs undivided attention of policy makers,” said Chandrajit Banerjee, Director General, CII referring to the first quarter GDP figures released this evening. There are no visible signs of investment pick up as investor sentiments continue to be very low. A weak rupee, tight liquidity, high cost of funds, procedural delays, etc are all co in the way of an investment revival, said CII.Time For Difficult ReformsThe Prime Minister also said the government will now have to undertake more difficult reforms, including reduction of subsidy and implementing GST, to put economy back on the path of stable, sustainable growth. "The easy reforms of the past have been done. We have the more difficult reforms to do such as the reduction of subsidy, the insurance and pension sector reform, eliminating bureaucratic red tape and implementing Goods and Services Tax (GST)," Singh said while addressing Parliament.Read Also: The Bright Side Of Crashing RupeeSeeking to sooth the worries about the economy, Prime Minister Manmohan Singh told parliament that the crashing value of the rupee was part of a needed adjustment that would make Asia's third-largest economy more competitive.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.Reading from a written statement, the Prime Minister promised his government would reduce the "unsustainably large" current account deficit undermining the currency."Clearly we need to reduce our appetite for gold, economise the use of petroleum products and take steps to increase our exports," he said.But he said that a weaker currency was the natural outcome of several years of high inflation, and although the rupee had overshot in the foreign exchange market its decline would bring some economic benefits. Read Also: PM Attacks BJPMiles To GoIn the insurance sector, the government proposes to increase the FDI cap to 49 per cent from 26 per cent, which the BJP opposes. The main opposition party is also not in favour of raising the FDI limit in the pension sector to 49 per cent. The Centre has been engaged with states to bring them on board for introduction of new indirect tax regime, GST. The Constitutional Amendment Bill was introduced in Parliament in 2010. In order to reduce subsidy outgo, the government has taken several initiatives, including partially deregulating diesel prices, allowing Oil companies to fix petrol prices and also capping domestic subsidised LPG cylinder at 9 per family a year. Besides, to attract foreign funds, it has also hiked FDI limits in various sectors including retail, aviation, telecom, power exchanges, petroleum and natural gas sectors. Pitching for more reforms, the Prime Minister said easy reforms of the past have been done but the difficult ones remain. "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," he 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," Singh said. Blame It On The WorldThe Prime Minister attributed the sudden and sharp depreciation in rupee to various domestic and global factors like high current account deficit (CAD), US Federal Reserve plans to taper quantitative easing measures and tensions in Syria. "... the rupee has been especially hit because of our large CAD and some other domestic factors. We intend to act to reduce the CAD and improve the economy," Singh said. The deterioration in CAD, he said, has been mainly on account of huge import of gold, higher cost of crude oil imports and recently of coal. Moreover, Singh said that exports have been further hit by collapse in iron ore shipments making "our CAD unsustainably large". "Clearly we need to reduce our appetite for gold, economise the use of petroleum products and take steps to increase our exports," the Prime Minister said, adding the government will take all possible steps to bring down CAD below $70 billion this fiscal. The Prime Minister said the medium term objective of the government will be to reduce CAD to 2.5 per cent of GDP and the government will make all efforts to maintain "a macro economic framework friendly to foreign capital inflows to enable orderly financing of the current account deficit." "... it is important to recognise that the fundamentals of the Indian economy continue to be strong," Singh said. (Agencies)
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India's economy grew at the slowest quarterly rate in at least four year as the growth slipped to 4.4 per cent in the April-June quarter of this fiscal, dragged down by a contraction in manufacturing and mining.Analysts polled by Reuters had forecast growth of 4.7 per cent. June's figure of 4.4 per cent was the slowest growth since the Jan-March quarter of 2009.The country's gross domestic product (GDP) had expanded by 5.4 per cent in the April-June quarter of the last fiscal.On a sequential basis, the growth rate declined from 4.8 per cent in the January-March period of 2012-13.Commenting on the data, Economic Affairs Secretary Arvind Mayaram said, "Growth in the second quarter will improve and growth in the third and fourth quarters would be better."Mining and quarrying contracted by 2.8 per cent in the April-June quarter against a 0.4 per cent growth in the same period of the last fiscal, according to data released today by the Central Statistical Organisation (CSO).The manufacturing sector posted a contraction of 1.2 per cent as against a decline of 1 per cent in output a year earlier.Other sectors, including construction, power generation, hotels and transport, showed a marked deceleration in growth.Farm sector output expanded by 2.7 per cent in April-June compared with 2.9 per cent in the corresponding period of the last fiscal. Agriculture's Share In GDP Down To 13.7% In 2012-13The share of agriculture and allied sectors in India's GDP has declined to 13.7 per cent in 2012-13 due to shift from traditional agrarian economy to industry and service sectors, Parliament was informed today."As per latest estimates released by Central Statistics Office (CSO) the share of agricultural products/Agriculture and Allied Sectors in Gross Domestic Product (GDP) of the country was 51.9 per cent in 1950-51, which has now come down to 13.7 per cent in 2012-13 at 2004-05 prices," Minister of State for Agriculture Tariq Anwar said in a written reply to the Rajya Sabha.The decrease in the share of Agricultural and Allied Sectors in GDP of the country in comparison to other sectors is on account of structural changes due to a shift from a traditional agrarian economy to industry and service dominated one, he added."This phenomenon is generally expected in the normal development of an economy," Anwar said.In a separate query, the minister said despite a decline in the sector's contribution to GDP, foodgrain production and productivity has risen."Despite this, the production of foodgrains has increased from 230.8 million tonnes in 2007-08 to 255.4 million tonnes in 2013-14 (fourth advance estimates)," Anwar added.Similarly, productivity of foodgrains has increased from 1,860 kg per hectare in 2007-08 to 2,125 kg a hectare in 2012-13 (fourth advance estimate), he said.(Agencies)
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A combative Prime Minister Manmohan Singh on Friday, 30 August, made a scathing attack on the BJP in the Rajya Sabha, accusing them of hurting investors' sentiment by repeatedly disrupting Parliament, triggering a war of words.He asked the principal opposition party to recognise its responsibility of ensuring smooth functioning of Parliament asserting that it was not the responsibility of the government alone as contended by the BJP."Building of consensus is both the responsibility of government and the opposition. I wish the conduct of the opposition party was consistent while letting the ruling party govern," he said responding to clarifications on his statement on the sliding rupee.Attacking BJP for continuously 'opposing and criticising' the government, he said, "If the record of the last nine years is looked at, the principle opposition has never reconciled to the fact that it was voted out of power nine years back."The Prime Minister also said the government will now have to undertake more difficult reforms, including reduction of subsidy and implementing GST, to put economy back on the path of stable, sustainable growth. "The easy reforms of the past have been done. We have the more difficult reforms to do such as the reduction of subsidy, the insurance and pension sector reform, eliminating bureaucratic red tape and implementing Goods and Services Tax (GST)," Singh said while addressing Parliament.Read Also: The Bright Side Of Crashing RupeeSeeking to sooth the worries about the economy, Prime Minister Manmohan Singh told parliament that the crashing value of the rupee was part of a needed adjustment that would make Asia's third-largest economy more competitive.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.Reading from a written statement, the prime minister promised his government would reduce the "unsustainably large" current account deficit undermining the currency."Clearly we need to reduce our appetite for gold, economise the use of petroleum products and take steps to increase our exports," he said.But he said that a weaker currency was the natural outcome of several years of high inflation, and although the rupee had overshot in the foreign exchange market its decline would bring some economic benefits. The Tough Reforms RemainThe Congress-led United Progressive Alliance government has been pursuing the principal opposition party Bharatiya Janata Party to get through the hike in foreign direct investment (FDI) in the insurance sector, since 2008. Amid repeated disruptions and din due to clashes between the Treasury Benches and the BJP, the Prime Minister noted that Parliament is the supreme body of the country but if it is not allowed to function session after session, investors' confidence will be affected.Hurt over being targeted by BJP, Singh asked the Chair, "Have you heard of any country where the Prime Minister is not allowed to introduce his council of ministers..."...Have you heard of Parliament in any country where the opposition shouts 'Prime Minister chor hai'. The type of things that have been said here...."Reduce appetite for gold, it's time for difficult reforms: PMAt one point, Leader of the Opposition Arun Jaitley shot back saying, "have you heard of any country where the Prime Minister has won the vote of confidence by buying MPs?", triggering uproar.The reference was to the July 2008 Trust Vote sought by the Prime Minister in the wake of Left parties withdrawing support on the Indo-US nuclear deal issue.In the insurance sector, the government proposes to increase the FDI cap to 49 per cent from 26 per cent, which the BJP opposes. The main opposition party is also not in favour of raising the FDI limit in the pension sector to 49 per cent. The Centre has been engaged with states to bring them on board for introduction of new indirect tax regime, GST. The Constitutional Amendment Bill was introduced in Parliament in 2010. In order to reduce subsidy outgo, the government has taken several initiatives, including partially deregulating diesel prices, allowing Oil companies to fix petrol prices and also capping domestic subsidised LPG cylinder at 9 per family a year. Besides, to attract foreign funds, it has also hiked FDI limits in various sectors including retail, aviation, telecom, power exchanges, petroleum and natural gas sectors. Pitching for more reforms, the Prime Minister said easy reforms of the past have been done but the difficult ones remain. "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," he 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," Singh said. The Prime Minister attributed the sudden and sharp depreciation in rupee to various domestic and global factors like high current account deficit (CAD), US Federal Reserve plans to taper quantitative easing measures and tensions in Syria. "... the rupee has been especially hit because of our large CAD and some other domestic factors. We intend to act to reduce the CAD and improve the economy," Singh said. The deterioration in CAD, he said, has been mainly on account of huge import of gold, higher cost of crude oil imports and recently of coal. Moreover, Singh said that exports have been further hit by collapse in iron ore shipments making "our CAD unsustainably large". "Clearly we need to reduce our appetite for gold, economise the use of petroleum products and take steps to increase our exports," the Prime Minister said, adding the government will take all possible steps to bring down CAD below $70 billion this fiscal. The Prime Minister said the medium term objective of the government will be to reduce CAD to 2.5 per cent of GDP and the government will make all efforts to maintain "a macro economic framework friendly to foreign capital inflows to enable orderly financing of the current account deficit" "... it is important to recognise that the fundamentals of the Indian economy continue to be strong," Singh said. Emphasising that the country's overall public-debt to GDP ratio has been declining, he said India's external debt is only 21.2 per cent of GDP while short-term stands at 5.2 per cent. "Our forex reserves stand at USD 278 billion, and are more than sufficient to meet India's external financing requirements," he said. The rupee depreciation, he said, can be good for economy as it will help to increase the export competitiveness and discourage imports. The foreign exchange markets, he regretted, have a notorious history of overshooting. "Unfortunately, this is what is happening not only in relation to the rupee but also other currencies," Singh said, stressing that the value of a currency is determined by fundamental of the economy and the government is taking steps to improve them. Referring to economic prospects, Singh said that even though growth has slowed down in recent quarters, it is expected to pick up. "I expect growth in the first quarter of 2013-14 to be relatively flat, but as the effects of the good monsoon kick in, I expect it to pick up," he said. "All in all, the macro-stabilisation process which should support the value of the rupee is under way. I expect that as the fruits of our efforts materialise, currency markets will recover," he said. Regarding fiscal deficit, the Prime Minister said the government will do whatever is necessary to contain the fiscal deficit to be 4.8 per cent this year. "The most growth friendly way to contain the deficit is to spend carefully, especially on subsidies that do not reach the poor, and we will take effective steps to that end," he said. (Agencies)
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Prime Minister Manmohan Singh sought to soothe worries about the economy on Friday, 30 August, 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.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.Reading from a written statement, the prime minister promised his government would reduce the "unsustainably large" current account deficit undermining the currency."Clearly we need to reduce our appetite for gold, economise the use of petroleum products and take steps to increase our exports," he said.But he said that a weaker currency was the natural outcome of several years of high inflation, and although the rupee had overshot in the foreign exchange market its decline would bring some economic benefits."To some extent, depreciation can be good for the economy as this will help to increase our export competitiveness and discourage imports," he said.Singh's deft handling of the 1991 crisis helped launch 20 years of rapid economic growth and he has since been credited as the architect of India's emergence as a serious economic power.Now in his eighties, Singh seems to have lost some of that agility and is often pilloried for staying mostly out of the public eye while the country's economy goes from bad to worse.In response to his parliament speech, opposition leader Arun Jaitley said Singh's track record as prime minister was of populist policies, not reform."If you continue to follow the course, then the legacy that you leave behind will not be the legacy that you left behind as the finance minister. That legacy was different," Jaitley told the upper house.(Reuters)
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