NEW DELHI: Prime Minister Manmohan Singh on Monday assured business leaders that the government would not hesitate in cutting levies and borrowing
costs to prevent the economy from going into a tailspin and urged industry not to resort to large-scale job cuts before the steps already taken and those being planned delivered results.
The Reserve Bank of India (RBI) has already taken the knife to reserve requirements of banks and cut some rates at which it lends money to banks as it looks to bolster the economy from a credit crunch that has roiled global financial markets and economies. Last week, the government cut duties on aviation fuel and steel to give a boost to the aviation and steel sectors.
Meeting captains of industry here, Mr Singh said the government would invest more in infrastructure, speed up social spending and take other steps to maintain growth and stability in the economy. "The government will take all necessary monetary and fiscal policy measures on the domestic front to protect our growth rates," a government statement issued after the meeting quoted Mr Singh as saying.
The government expects gross domestic product (GDP) growth to slow to 7.5-8% this year. The economy expanded by 9% last year. "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 does not suffer from constraints of funds," Mr Singh said in the statement. "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."
The prime minister's two-hour-long meeting was attended by industry chieftains such as Reliance Industries chairman Mukesh Ambani, ICICI Bank CEO KV Kamath, Essar Group chairman Shashi Ruia, HDFC chairman Deepak Parekh, Mahindra Group managing director Anand Mahindra and ITC chairman YC Deveshwar. Finance minister P Chidambaram, commerce and industry minister Kamal Nath, RBI governor D Subbarao and Planning Commission deputy chairman Montek Singh Ahluwalia represented the government.
Unlike developed economies facing major stresses in their financial systems, Dr Singh said India's banking system and deposits were safe and asked industry to be mindful of its social obligations in coping with the effects of this global crisis. He added that government-run banks had been ordered to ensure that they act "counter-cyclically" to prevent confidence levels in the economy from falling. "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," Dr Singh stated.
The inflation rate eased to 10.68% during the week to October 18, falling below 11% for the first time since May this year. It hit 12.76% in August. The RBI has deployed all three of its main tools to shore up growth after inter-bank lending rates climbed to 21% last week. It has cut its repurchase rate to 7.5% from 8%, reduced the amount of deposits that lenders need to set aside as reserves by one percentage point to 5.5% and cut the amount of money that banks are required to keep invested in government bonds to 24% from 25%.
ICICI Bank CEO KV Kamath said the impact of the recent round of rate cuts was still to be felt. "We will have to wait for some time to see the impact," said Mr Kamath, adding that the monetary signals from authorities were clear and banks would take a call on cutting interest rates soon.
