Click to play videoNew Delhi: Prime Minister Manmohan Singh has admitted that the global economic turbulence has begun to hurt India.
Singh met top industry leaders on Monday in New Delhi and asked them to remain cautious but also assured them that the banking system and deposits were safe and the government would take more steps to protect economic growth.
"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 rate," the Prime Minister assured industry leaders.
"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 banks. Global uncertainty is also tending to dampen investor sentiment," he was quoted as saying by PTI.
He asked industry to refrain from any "knee-jerk" reaction such as large-scale lay-offs, which might lead to a negative spiral, and said "industry must bear in mind its societal obligations in coping with the effects of this global crisis", which the Prime Minister felt "is now likely to be more severe and prolonged".
"Our first priority was to protect the Indian financial system from possible loss of confidence or contagion effect ... 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."
"We have given very clear assurance to the Prime Minister and his Cabinet colleague that there is no question of any lay-off and the industry is going forward in an expansion drive and it will continue," Sajjan Jindal Vice Chairman & MD, JSW Steel said.
The meeting was attended, among others, by Ratan Tata, Mukesh Ambani, KV Kamath, Shashi Ruia, Deepak Parekh, KP Singh, where Finance Minister P Chidambaram, RBI Governor D Subbarao and Planning Commission Deputy Chairman Montek Singh Ahluwalia represented the government.
Singh said additional liquidity and reduction in repo rate will help to "provide credit at reasonable rates".
"The government will take necessary monetary and fiscal policy measures on the domestic front to protect our growth rates," he said.
Singh also added that India will also seek reform of international financial institutions to prevent recurrence of such crisis.
Industry Minister Kamal Nath too echoed the Prime Minister's views.
"A special cell will be setup to look into the need of the industries. The government will analyse and implement the suggestion given by the industries. This will include increasing liquidity and government will also increase spending on the infrastructure," Nath said.
After the meeting Managing Director and CEO, ICICI Bank, KV Kamath indicated that interest rates may come down.
"The cut in CRR and repo rate is a clear indication of where interest rates should head," he said.
The Reserve Bank of India (RBI) on Saturday had cut the cash reserve ratio (CRR) by 100 basis points cut and the repo rate by 0.5 per cent.
The one percentage point cut in CRR, the amount which banks have to park with the apex bank, has been brought down to 5.5 per cent will infuse Rs 40,000 crore into the financial system.
The CRR cut will be in two tranches and the first one of 0.5 per cent will be effective retrospectively from October 25 and the second from November 8.
Repo rate, the rate at which it lends to banks, has been cut by 0.5 per cent to 7.5 per cent with effect from November 3.
Statutory liquidity ratio (SLR), the amount which banks are mandated to park in government securities, have also been reduced by 100 basis points to 24 per cent.
(With inputs from PTI)
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