Prime Minister outlines the measures being taken to face the global financial crisis
November 03, 2008: The Prime Minister, Dr Manmohan Singh met the captains of Indian Industry in New Delhi today. In his opening address, Dr Singh called upon the industry leaders to join in with the government to convert the current global crisis into an opportunity for India. He also outlined the measures being taken by the government to prevent Indian economy from facing the adverse affects of the global financial crisis. Following is the text of the Prime Minister’s address on the occasion:
“We are meeting at a time when the world economy is going through an unprecedented crisis which started in the financial sector in the US but has now spread globally. The financial crisis has exacerbated a global downturn that was expected earlier but is now likely to be more severe and prolonged. 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 our banks. Global uncertainty is also tending to dampen investor sentiment. All countries have recognized the severity of the problem and its likely fallout, and are taking strong steps in a coordinated fashion. We have done the same and I wanted to share with you the approach we shall follow.
Our first priority was to protect the Indian financial system from possible loss of confidence or contagion effects. I am happy to say that the direct exposure of our banks to problem assets is minimal. Our banks are well regulated and also well capitalized. I think we have successfully conveyed to our people that our banking system, both in the public and the private sector, is safe, and the Government stands behind it and that no one should fear for the safety of bank deposits.
We have also taken several measures to infuse liquidity into the system to ensure adequate flow of credit. We have reduced the Cash Reserve Ratio by 350 basis points. We have also reduced the SLR and the Repo rate. Special facilities have been introduced that will allow banks to obtain finance from the RBI to meet the needs of debt mutual funds or NBFCs. I believe these steps have made a substantial difference. We recognize that 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.
With these measures I am confident that our financial system will be stable and function well. However, we are also concerned that the negative impact on the real economy must be minimized. The additional liquidity provided or the reduction in Repo rate will help to provide credit at reasonable rates. The public sector banks have been instructed to ensure that they act counter cyclically in this situation to counter the general erosion of confidence. We are able to act more boldly because our efforts to contain inflation have begun to be effective. Movements in the WPI over the past six weeks suggest a definite abatement of inflationary process.
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