Economy can weather rupee storm, insists Singh

Reuters/New Delhi/MumbaiPrime Minister Manmohan Singh sought to quell talk of currency crisis yesterday, after the rupee plumbed record lows as it notched its biggest ever monthly fall, but there was no word of sweeping reforms needed to restore investor confidence.Weak economic growth, a record high current account deficit and concerns about the government’s finances are proving a toxic mix for the rupee, which hit a record low of 68.85 to the dollar on Wednesday after falling 20% since May.Dollar selling by the Reserve Bank of India, rather than Prime Minister Manmohan Singh’s speech to parliament, helped pull the rupee out of a slide back towards the lows on Friday, but it has lost around 10% of its value in August alone, according to Thomson Reuters data.While global factors such as the potential end to US stimulus and most recently tensions over Syria have sent emerging market currencies reeling, the scale of the rupee’s decline is far greater than most.Singh said the currency’s fall was a matter of concern, but dismissed doomsayers predictions for the economy, insisting its fundamentals remained sound and its banking system was well capitalised above international requirements.“We need to ensure the fundamentals of the economy remain strong so that India continues to grow at a healthy rate for many years to come,” the octogenarian prime minister told lawmakers in his first significant speech to parliament on the economy in months.“That we will ensure. We are no doubt faced with important challenges.” India suffered decade-low growth of 5% in the fiscal year that ended in March, and many analysts surveyed by Reuters during the past week expect this year to be worse. Singh, a veteran economist who made his reputation as finance minister overseeing India’s recovery from a balance of payments crisis in 1991, predicted growth would recover to 5.5% this fiscal year.With a national election due by May, Singh’s minority government is under fire from all quarters to come up with meaningful reforms, including a possible increase in diesel prices, that would lower the subsidy burden.He said the government would need to find ways to reduce imports of gold and oil products to reduce the trade gap, and he put a gloss on the rupee’s depreciation by saying it would help make exports more competitive and reduce imports.By mid-afternoon, the RBI’s intervention had helped the rupee recover to 66.25 per dollar from an earlier low of 67.43, to stand a touch stronger than Thursday’s close of 66.55.Singh’s liberalisation of a moribund economy in 1991 provided the platform for 20 years of rapid economic growth, and he has been credited as the architect of India’s emergence as a serious economic power. But now he is being pilloried for lost opportunities to make further reforms during his nine years as prime minister.While few economists believe India’s problems could become as great as they were in 1991, there is broad agreement that the country needs reforms on a similar scale to open up its markets.