Remarks by Prime Minister Dr. Manmohan Singh on International Financial Crisis at the ASEM Summit at Beijing
--------------------------------------------------------------------------------
10:29 IST
Following is the text of the remarks by the Prime Minister, Dr. Manmohan Singh at the ASEM Summit at Beijing yesterday:
The international financial crisis has resulted from three failures:
(a) A regulatory and supervisory failure in major developed countries;
(b) A failure in risk management in private financial institutions;
(c) A failure in market discipline mechanism
These are not my views but those of the distinguished Managing Director of the IMF, with which I agree.
We must analyse objectively how and why these failures have occurred with such ferocity. This is necessary to put in place a new set of rules which will prevent reoccurrence of such failures.
The sad truth is that in this age of globalisation we have a global economy of sorts but it is not supported by a global polity to provide effective governance.
The resulting crisis of liquidity, accumulation of bad assets, shortage of capital and collapse of confidence threatens to spill over into the real economy by way of reduced demand for goods and services particularly exports, reduced access to trade and suppliers credits superimposed on other crises – food and fuel price rises that have strained budgets and balance of payments leading to rising inflation and living costs in many developing countries.
The President of the World Bank has identified at least 30 developing countries whose balance of payments will experience a severe deterioration in the wake of this financial crisis.
The immediate task is to declog the credit markets the world over. Coordinated global action is essential to restore a measure of confidence in the credit markets.
From the standpoint of developing countries, international financial institutions, particularly the IMF and World Bank, need to put in place exogenous shock facilities to provide assistance to the affected countries more quickly and in larger amounts with less service conditionalities and greater flexibility.
Countries with strong foreign exchange positions could make additional resources available to the international financial institutions on appropriate terms to finance their operations.
As a counter cyclical device, increased infrastructure investments in developing countries, if backed by increased resources flows from multilateral financial institutions such as the IBRD and Regional Development Banks, can act as a powerful stabilizer.
The IMF should revisit the potentially powerful instrument of creating liquidity through fresh allocation of Special Drawing Rights in favour of multilateral development finance institutions.
The reform and reconstruction of the financial system has to be a collective international effort since borders no longer confine financial institutions or can keep out financial turmoil. Given the growth in cross-border investment, trade and banking in the last three decades, the world must ponder over the need for a global monitoring authority to promote global supervision and cooperation in the increasingly integrated world in which we live.
In devising a reform agenda, one must bear the wise saying of John Maynard Keynes regarding the economically damaging role of excessive speculative activity. To quote Keynes :
“Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a byproduct of the activities of a casino, the job is likely to be ill-done"
Clearly, there has been a massive failure of regulatory and supervisory powers. Speculators have had a free run for far too long a period. International institutions like the IMF have also not covered themselves with glory. There has been an unacceptable failure of effective multilateral supervision of major developed economies and in particular of what has been going on in their financial markets.
India’s banking system is sound and well capitalized. It is not exposed to the type of assets which have given rise to this crisis. Our real economy will grow at the rate of 7 to 7.5 percent this year despite the global slowdown of export demand and capital inflows. We have injected fresh liquidity in the system.
We realize that we cannot remain totally unaffected when the global economy and financial system are in deep trouble. Our stock markets and the exchange rate of the rupee are under pressure due to capital outflow of foreign institutional investors. Sooner or later, the real economy is bound to experience the pain.
We are therefore sincere in our desire to cooperate and coordinate our actions with the world community to find effective and pragmatic solutions to the formidable challenges the world economy is now faced with.”
****
Saturday, October 25, 2008
PM ON SUSTAINABLE DEVELOPMENT
PM’s STATEMENT ON SUSTAINABLE DEVELOPMENT
--------------------------------------------------------------------------------
24 Oct 2008,Beizing 11:55 IST
Following is the text of the Prime Minister, Dr. Manmohan Singh’s statement on Sustainable Development in Beijing today:
“Sustainable development is among the biggest challenges of our times. However, a lot of cooperative work is needed to transform it from a mere buzz word to an operational strategy for development.
We know that Asia is home to the largest concentration of the world’s poor. Poverty eradication at this scale requires a collaborative global effort to promote development and in particular to create job opportunities. If we fail, we will continue to live in a world of instability and conflict.
The development strategies that we adopt have to result in a fair, equitable and balanced distribution of the economic dividend. At the same time, it must also preserve and protect the environment. Only then can we make faster progress in meeting the Millennium Development Goals.
We therefore need to put in place a global action plan to promote both food and energy security for managing the challenges of both accelerated growth and its environmental sustainability.
Unfortunately, the international community has not lived up to its commitments for technology transfer and additional financing since the Rio Conference. We should pursue innovative mechanisms for raising finance for development and creating a favourable IPR regime.
Climate change threatens our environment and our development. A holistic approach is needed to tackle this problem. We cannot do so by perpetuating the poverty of the developing countries, or by preventing their industrialization. The challenge ahead is to put in place development strategies which improve living standards, create opportunities for job creation and are also environment friendly.
Thus, common but differentiated responsibility should be the cardinal principle of negotiations to find practical and pragmatic solutions within the UN Framework Convention on Climate Change.
Progress on the implementation of the Kyoto Protocol has been slow. Emissions of developed countries have actually increased by 2.6 % from 2000 to 2005. We should call upon our European partners to do more in this regard. The developing world is committed to doing its share.
I believe that the principle of convergence of per-capita emissions of developing countries with advanced developed countries is catching the imagination of the international community. We should recognize that each citizen of the world has equal entitlement to the global atmospheric space.
Our dependence on fossil fuels is a cause of many problems. Greater effort is needed to promote clean and renewable sources of energy, including nuclear energy.
The world therefore needs a new compact to increase efficiency in the use of available energy resources.
Without peace there can be no sustainable development. Terrorism, extremism, and intolerance threaten our social cohesion.
We need to continuously strengthen international cooperation to combat terrorism. We must bring perpetrators, organizers, financiers and sponsors of terrorism to justice.
Finally, globalization, if it is to succeed, must be fair and benefit the whole of humanity. Development has to be inclusive. It must reduce disparities of income and wealth. It should create ever widening circles of stake-holders. It should respect pluralism and diversity.
Asia is growing rapidly and has proven capabilities as a provider of goods, services and knowledge. Europeans are world leaders in the scientific, technological and financial areas. We have therefore much to learn from each other. We seek on this historic occasion a meeting of minds and of these complementarities to bring both stability and prosperity to our two continents and to the world at large.”
SOURCE:PIB****
--------------------------------------------------------------------------------
24 Oct 2008,Beizing 11:55 IST
Following is the text of the Prime Minister, Dr. Manmohan Singh’s statement on Sustainable Development in Beijing today:
“Sustainable development is among the biggest challenges of our times. However, a lot of cooperative work is needed to transform it from a mere buzz word to an operational strategy for development.
We know that Asia is home to the largest concentration of the world’s poor. Poverty eradication at this scale requires a collaborative global effort to promote development and in particular to create job opportunities. If we fail, we will continue to live in a world of instability and conflict.
The development strategies that we adopt have to result in a fair, equitable and balanced distribution of the economic dividend. At the same time, it must also preserve and protect the environment. Only then can we make faster progress in meeting the Millennium Development Goals.
We therefore need to put in place a global action plan to promote both food and energy security for managing the challenges of both accelerated growth and its environmental sustainability.
Unfortunately, the international community has not lived up to its commitments for technology transfer and additional financing since the Rio Conference. We should pursue innovative mechanisms for raising finance for development and creating a favourable IPR regime.
Climate change threatens our environment and our development. A holistic approach is needed to tackle this problem. We cannot do so by perpetuating the poverty of the developing countries, or by preventing their industrialization. The challenge ahead is to put in place development strategies which improve living standards, create opportunities for job creation and are also environment friendly.
Thus, common but differentiated responsibility should be the cardinal principle of negotiations to find practical and pragmatic solutions within the UN Framework Convention on Climate Change.
Progress on the implementation of the Kyoto Protocol has been slow. Emissions of developed countries have actually increased by 2.6 % from 2000 to 2005. We should call upon our European partners to do more in this regard. The developing world is committed to doing its share.
I believe that the principle of convergence of per-capita emissions of developing countries with advanced developed countries is catching the imagination of the international community. We should recognize that each citizen of the world has equal entitlement to the global atmospheric space.
Our dependence on fossil fuels is a cause of many problems. Greater effort is needed to promote clean and renewable sources of energy, including nuclear energy.
The world therefore needs a new compact to increase efficiency in the use of available energy resources.
Without peace there can be no sustainable development. Terrorism, extremism, and intolerance threaten our social cohesion.
We need to continuously strengthen international cooperation to combat terrorism. We must bring perpetrators, organizers, financiers and sponsors of terrorism to justice.
Finally, globalization, if it is to succeed, must be fair and benefit the whole of humanity. Development has to be inclusive. It must reduce disparities of income and wealth. It should create ever widening circles of stake-holders. It should respect pluralism and diversity.
Asia is growing rapidly and has proven capabilities as a provider of goods, services and knowledge. Europeans are world leaders in the scientific, technological and financial areas. We have therefore much to learn from each other. We seek on this historic occasion a meeting of minds and of these complementarities to bring both stability and prosperity to our two continents and to the world at large.”
SOURCE:PIB****
Friday, October 24, 2008
LIMIITED LIABILITY PARNETSHIP BILL PASSED BY PARLIAMENT
Limited Liability Partnership Bill, 2008 passed by Rajya Sabha
ALL SIDES SUPPORT THE BILL
--------------------------------------------------------------------------------
New Delhi 24.10.2008
15:0 IST
Rajya Sabha has passed the Limited Liability Partnership Bill, 2008. Minister of Corporate Affairs, Shri Prem Chand Gupta today presented the Bill for consideration and passage by the House. All members supported it, thereby giving it the nod of the Rajya Sabha. The Bill provides for the formation and regulation of limited liability partnerships and for matters connected therewith or incidental thereto.
Limited Liability Partnership (LLP) as proposed in the Bill, 2008 is a new corporate form that enables professional expertise and entrepreneurial initiative to combine, organize and operate in an innovative and efficient manner. In India, this need has long been recognised for businesses which may require a framework that provides flexibility suited to requirements of service, knowledge and technology based enterprises.
Services sector is playing a major role in the national economy and there is a growing diversity in the range of services being offered. The services sector would also find this form very useful.The advantage of the LLP form would be that it will not impose detailed legal and procedural requirements intended for large widely held companies on such enterprises. In this way it will also be useful for small enterprises.
The need for LLP legislation has been recognized for a very long time. Various committees and Expert Groups have, from time to time, recommended introduction of LLP legislation in India. In the last decade itself, Abid Hussain Committee (1997) had recommended this legislation in the context of SSIs. The Naresh Chandra Committee on Regulation of Private Companies and Partnerships (2003) and Dr. Irani Committee on New Company Law (2005) had also made recommendations for a separate LLP Legislation.
However, it is the recent initiative of the Ministry of Corporate Affairs that has enabled this legislation to be finalized and tabled in the Parliament.
Government had earlier introduced the Limited Liability Partnership Bill, 2006 in the Rajya Sabha on 15th December, 2006. It was later referred to the Department Related Parliamentary Standing Committee on Finance for examination and report. The Committee submitted its recommendations in its report to both Houses of Parliament on 27th November, 2007. The present Bill, 2008 has taken in view the recommendations made by the Standing Committee and other relevant inputs.
The salient features of the LLP Bill, 2008 are as follows:
(i) The LLP will be an alternative corporate business vehicle that would give the benefits of limited liability but would allow its members the flexibility of organizing their internal structure as a partnership based on an agreement.
(ii) The Bill does not restrict the benefit of LLP structure to certain classes of professionals only and would be available for use by any enterprise which fulfills the requirements of the Act.
(iii) While the LLP will be a separate legal entity, liable to the full extent of its assets, the liability of the partners would be limited to their agreed contribution in the LLP. Further, no partner would be liable on account of the independent or un-authorized actions of other partners, thus allowing individual partners to be shielded from joint liability created by another partner’s wrongful business decisions or misconduct.
(iv) LLP shall be a body corporate and a legal entity separate from its partners. It will have perpetual succession. Indian Partnership Act, 1932 shall not be applicable to LLPs. Since LLP shall be in the form of a body corporate, it is also proposed that the relevant provisions of the Companies Act, 1956 may be made applicable to LLPs at any time in the future by Notification by Central Government, with such changes or modifications as appropriate.
(v) An LLP shall be under obligation to maintain annual accounts reflecting true and fair view of its state of affairs. Since tax matters of all entities in India are addressed in the Income Tax Act, 1961, the taxation of LLPs shall be addressed in that Act.
(vi) Provisions have been made in the Bill for corporate actions like mergers, amalgamations etc.
(vii) While enabling provisions in respect of winding up and dissolutions of LLPs have been made in the Bill, detailed provisions in this regard would be provided by way of rules under the Act.
------------
sOURCE:pib)
ALL SIDES SUPPORT THE BILL
--------------------------------------------------------------------------------
New Delhi 24.10.2008
15:0 IST
Rajya Sabha has passed the Limited Liability Partnership Bill, 2008. Minister of Corporate Affairs, Shri Prem Chand Gupta today presented the Bill for consideration and passage by the House. All members supported it, thereby giving it the nod of the Rajya Sabha. The Bill provides for the formation and regulation of limited liability partnerships and for matters connected therewith or incidental thereto.
Limited Liability Partnership (LLP) as proposed in the Bill, 2008 is a new corporate form that enables professional expertise and entrepreneurial initiative to combine, organize and operate in an innovative and efficient manner. In India, this need has long been recognised for businesses which may require a framework that provides flexibility suited to requirements of service, knowledge and technology based enterprises.
Services sector is playing a major role in the national economy and there is a growing diversity in the range of services being offered. The services sector would also find this form very useful.The advantage of the LLP form would be that it will not impose detailed legal and procedural requirements intended for large widely held companies on such enterprises. In this way it will also be useful for small enterprises.
The need for LLP legislation has been recognized for a very long time. Various committees and Expert Groups have, from time to time, recommended introduction of LLP legislation in India. In the last decade itself, Abid Hussain Committee (1997) had recommended this legislation in the context of SSIs. The Naresh Chandra Committee on Regulation of Private Companies and Partnerships (2003) and Dr. Irani Committee on New Company Law (2005) had also made recommendations for a separate LLP Legislation.
However, it is the recent initiative of the Ministry of Corporate Affairs that has enabled this legislation to be finalized and tabled in the Parliament.
Government had earlier introduced the Limited Liability Partnership Bill, 2006 in the Rajya Sabha on 15th December, 2006. It was later referred to the Department Related Parliamentary Standing Committee on Finance for examination and report. The Committee submitted its recommendations in its report to both Houses of Parliament on 27th November, 2007. The present Bill, 2008 has taken in view the recommendations made by the Standing Committee and other relevant inputs.
The salient features of the LLP Bill, 2008 are as follows:
(i) The LLP will be an alternative corporate business vehicle that would give the benefits of limited liability but would allow its members the flexibility of organizing their internal structure as a partnership based on an agreement.
(ii) The Bill does not restrict the benefit of LLP structure to certain classes of professionals only and would be available for use by any enterprise which fulfills the requirements of the Act.
(iii) While the LLP will be a separate legal entity, liable to the full extent of its assets, the liability of the partners would be limited to their agreed contribution in the LLP. Further, no partner would be liable on account of the independent or un-authorized actions of other partners, thus allowing individual partners to be shielded from joint liability created by another partner’s wrongful business decisions or misconduct.
(iv) LLP shall be a body corporate and a legal entity separate from its partners. It will have perpetual succession. Indian Partnership Act, 1932 shall not be applicable to LLPs. Since LLP shall be in the form of a body corporate, it is also proposed that the relevant provisions of the Companies Act, 1956 may be made applicable to LLPs at any time in the future by Notification by Central Government, with such changes or modifications as appropriate.
(v) An LLP shall be under obligation to maintain annual accounts reflecting true and fair view of its state of affairs. Since tax matters of all entities in India are addressed in the Income Tax Act, 1961, the taxation of LLPs shall be addressed in that Act.
(vi) Provisions have been made in the Bill for corporate actions like mergers, amalgamations etc.
(vii) While enabling provisions in respect of winding up and dissolutions of LLPs have been made in the Bill, detailed provisions in this regard would be provided by way of rules under the Act.
------------
sOURCE:pib)
Tuesday, October 21, 2008
ABOUT SIKKIM CHAMBER OF COMMERCE
Sikkim Chamber of Commerce is the rallying point for free enterprises in Sikkim. It is empowering Sikkim businesses in the changing times.
It was founded by some 200 founder members in the year 1962. Besides, all the trade associations and local chambers of businesses nominate two representatives each to the Executive body. Currently it is represented by trade associations in textile, chemist, hardware, electrical, motor parts and other businesses in Sikkim.
It is continuously taking up issues on up gradation and improvement of Indo-China border trade at Nathu la with various national and local agencies.
SCC shares the vision and speaks for Sikkim businesses directly and indirectly for over 3500 business units. It has membership of enterprises drawn from medium, small and tiny segments of manufacturing, trade and services. SCC maintains the lead as the proactive business solution provider through interactions at the highest political and commercial level within the State and at Centre.
Set up in 1962, on the advice of then Chogyal (King) of Sikkim, SCC is the oldest business organization of Sikkim businesses. It is registered with the Government of Sikkim.
In the knowledge-driven globalize economy, SCC stands for quality, competitiveness, transparency, accountability and business-government-civil society partnership to spread ethics-based business practices and to enhance the quality of life of the common people
SCC has always stood behind the nation in the hour of crisis. It has liberally aided in the recent Bihar Floods and also in Kargil War. It is committed to free enterprise and competition which is the key to enhance the quality of life of the people and to build a new, dynamic and vibrant Sikkim.
SCC acts as a bridge between the business enterprise however small or big and the Government for meaningful business and revenue in the State and is often consulted by the State Government on all developmental issues like ecology, urban development, infrastructure and planning.
Contact:
Shri S.K.Sarda, President
Shri Suresh Agarwal General Secretary
SIKKIM CHAMBER OF COMMERCE
Mahatma Gandhi Road
Gangtok, Sikkim 737101
Phone: 03592-203594
E-mail: sikkimchamberofcommerce@yahoo.com
It was founded by some 200 founder members in the year 1962. Besides, all the trade associations and local chambers of businesses nominate two representatives each to the Executive body. Currently it is represented by trade associations in textile, chemist, hardware, electrical, motor parts and other businesses in Sikkim.
It is continuously taking up issues on up gradation and improvement of Indo-China border trade at Nathu la with various national and local agencies.
SCC shares the vision and speaks for Sikkim businesses directly and indirectly for over 3500 business units. It has membership of enterprises drawn from medium, small and tiny segments of manufacturing, trade and services. SCC maintains the lead as the proactive business solution provider through interactions at the highest political and commercial level within the State and at Centre.
Set up in 1962, on the advice of then Chogyal (King) of Sikkim, SCC is the oldest business organization of Sikkim businesses. It is registered with the Government of Sikkim.
In the knowledge-driven globalize economy, SCC stands for quality, competitiveness, transparency, accountability and business-government-civil society partnership to spread ethics-based business practices and to enhance the quality of life of the common people
SCC has always stood behind the nation in the hour of crisis. It has liberally aided in the recent Bihar Floods and also in Kargil War. It is committed to free enterprise and competition which is the key to enhance the quality of life of the people and to build a new, dynamic and vibrant Sikkim.
SCC acts as a bridge between the business enterprise however small or big and the Government for meaningful business and revenue in the State and is often consulted by the State Government on all developmental issues like ecology, urban development, infrastructure and planning.
Contact:
Shri S.K.Sarda, President
Shri Suresh Agarwal General Secretary
SIKKIM CHAMBER OF COMMERCE
Mahatma Gandhi Road
Gangtok, Sikkim 737101
Phone: 03592-203594
E-mail: sikkimchamberofcommerce@yahoo.com
Monday, October 20, 2008
DEPOSITS IN INDIAN BANK SAFE-PM IN LOK SABHA
DEPOSITS IN OUR BANKS ENTIRELY SAFE: PM
A NUMBER OF STEPS TAKEN TO ADDRESS THE PROBLEMS
--------------------------------------------------------------------------------
nEW dELHI 20.10.2008
17:19 IST
The Prime Minister, Dr. Manmohan Singh, has assured the depositors that their deposits in our banks is entirely safe. Making a suo motu statement in the Lok Sabha today, he said that the Indian banking system is not directly exposed to the sub-prime mortgage assets. “Their exposure to other problem assets is also minimal. Our banks, both in the public sector and in the private sector, are financially sound, well capitalised and well regulated. There should be no fear of a failure of any bank. In particular, I wish to assure depositors in our banks that their deposits are entirely safe,” the Prime minister added.
Dr. Singh further said that as a result of a number of steps taken to address the problems in India, the liquidity position in the financial system has improved considerably. He added that the Government has arranged to provide, in advance, a sum of Rs.25,000 crore to the Banking System under the Debt Waiver and Debt Relief Scheme. The limit of investment by Foreign Institutional Investors in corporate bonds was increased from US$3 billion to US$6 billion. The Prime Minister also informed the House that suitable advisories have been issued by the RBI and the Ministry of Finance to the banks to ensure that borrowers are provided adequate credit, including export credit and working capital. “Banks must also provide adequate funds in the form of investment or credit to mutual funds and NBFCs who, in turn, lend to industry, trade and business”, he added.
Following is the text of the suo motu statement made by the Prime Minister, Dr. Manmohan Singh in the Lok Sabha on the ongoing global financial crisis and its impact on India”
“I wish to make a statement on the ongoing global financial crisis and its impact on India . Honourable Members are aware that this crisis had its origins in the United States and spread quickly to Europe. While the crisis began in the housing mortgage market, it soon extended to the money market and the credit market. As a result, several financial institutions were pushed to the brink of insolvency. The US and some other developed countries have bailed out a number of financial institutions and banks. They have also taken a number of unconventional steps to infuse liquidity, recapitalize the banks and unfreeze the credit market.
The financial storm has shaken confidence in the system and precipitated a steep decline in stock markets.
It has produced a sharp slowdown in economic activity, with the prospect of a prolonged recession in industrialised countries. Many observers have described this as the worst crisis since the Great Depression of 1930s.
India, like other developing countries, is experiencing the ripple effects of the financial crisis. However, we have taken a number of steps to minimise the impact.
Our first concern was to ensure the stability of our banking system. I am happy to inform the House that the Indian banking system is not directly exposed to the sub-prime mortgage assets. Their exposure to other problem assets is also minimal. Our banks, both in the public sector and in the private sector, are financially sound, well capitalised and well regulated. There should be no fear of a failure of any bank. In particular, I wish to assure depositors in our banks that their deposits are entirely safe.
Although our banks are safe, and they are also providing credit in line with anticipated credit targets, the global turmoil has led to a contraction in other forms of commercial credit. External commercial borrowings, which are used by the corporate sector have dried up, as have international suppliers credits. This has led to a reduction in overall credit availability in the economy even though credit from commercial banks has expanded satisfactorily. This contraction produced a liquidity crisis in the system.
We have taken a number of steps to address this problem. Between July 6, 2008 to October 15, 2008, the RBI cut the Cash Reserve Ratio by a total of 250 basis points. The SLR requirements were relaxed initially by 1 percentage point and subsequently an additional window of 0.5 percentage points was introduced specifically to enable banks to draw funds to provide liquidity to mutual funds.
As a result of these steps, the liquidity position in the financial system has improved considerably. The call money rate today is around 6.8 per cent.
Government also arranged to provide, in advance, a sum of Rs.25,000 crore to the banking system under the Debt Waiver and Debt Relief Scheme. The limit of investment by Foreign Institutional Investors in corporate bonds was increased from US$3 billion to US$6 billion.
Earlier today, the RBI announced a 100 basis points cut in the repo rate which is the rate at which banks can borrow against surplus SLR securities. Government welcomes this decision. It will have a beneficial effect on the interest rate structure and, in combination with the other steps to increase liquidity, will help to support economic activity and investment. It is broadly consistent with our objective to control inflation which has already begun to moderate.
I am happy to inform Honourable Members that the Wholesale Price Index has declined in the last three weeks and, although the current rate is still high, the movement in the level of prices shows a clear deceleration in the current momentum of inflation. We expect a further reduction in the Wholesale Price Index in the next two months.
The Government is conscious of the fact that it is not enough to infuse liquidity. The liquidity must translate into expanded flow of credit to industry, trade and business. Suitable advisories have been issued by the RBI and the Ministry of Finance to the banks to ensure that borrowers are provided adequate credit, including export credit and working capital. Banks must also provide adequate funds in the form of investment or credit to mutual funds and NBFCs who, in turn, lend to industry, trade and business. These institutions are an important part of the larger financial system and banks are being encouraged to provide liquidity to ensure that there is no disruption in economic activity.
Both RBI and Government are carefully monitoring the flow of credit and will ensure that the additional liquidity infused into the system translates into actual credit. We will not hesitate to do more if needed. While the capital adequacy ratios of all our banks are well above the Basel norm and above the RBI stipulated norm, Government has promised that it will help banks, which have lower ratios, to access funds to increase their Capital Risk Weighted Asset Ratio to 12 per cent.
The financial crisis and the economic slowdown in the developed countries is likely to have an indirect impact on the Indian economy. Fortunately, this effect will be on an underlying strong performance. GDP growth in the first quarter of 2008-09 was 7.9%. During April-August, 2008, exports increased, in dollar terms by 35.1 per cent. Foreign Direct Investment, during this period was US$14.8 billion. Gross tax revenues are on target.
The CMIE database shows that a huge amount of money towards capital expenditure is in the pipeline.
Nevertheless, we must be prepared for a temporary slowdown in the Indian economy. The precise impact is difficult to estimate at this point since the depth and duration of the global slowdown remain uncertain. Some estimates project GDP growth to decelerate to 7.5 per cent in the current year. The most pessimistic estimates place it at no less than 7 per cent. Our effort will be to minimise the negative effect of the financial crisis and, once the global situation stabilises, to return to the growth trajectory of 9 per cent. I would urge Honourable Members and the people of India to continue to repose faith in the fundamentals of the Indian economy.
Honourable Members will recall that, in anticipation of a slowdown, we had stepped up public expenditure in the Budget presented on February 29, 2008. Our expenditure proposals were criticised at the time in some quarters, but I am happy to note that it is now widely acknowledged that increased public expenditure is an important part of the solution. Our expenditure on education, health, NREGP, NRHM, AIBP, JNNURM and other programmes will, I believe, stand us in good stead in these difficult times. Besides, the debt waiver and debt relief amounting to Rs.65,000 crore to 3,60,00,000 farmers will also greatly benefit our farmers and enthuse them to increase production.
India has faced challenges in the past and has overcome them. We have the strength to overcome the current challenges too. In fact, it is when India is challenged that the Indian people rise to the occasion and convert the challenge into an opportunity. There is no place for fear. This is the time for unity of purpose and resolute action.
I seek the support of all sections of this House to the measures taken by Government and the authorities.”
( SOURCE: pib)
A NUMBER OF STEPS TAKEN TO ADDRESS THE PROBLEMS
--------------------------------------------------------------------------------
nEW dELHI 20.10.2008
17:19 IST
The Prime Minister, Dr. Manmohan Singh, has assured the depositors that their deposits in our banks is entirely safe. Making a suo motu statement in the Lok Sabha today, he said that the Indian banking system is not directly exposed to the sub-prime mortgage assets. “Their exposure to other problem assets is also minimal. Our banks, both in the public sector and in the private sector, are financially sound, well capitalised and well regulated. There should be no fear of a failure of any bank. In particular, I wish to assure depositors in our banks that their deposits are entirely safe,” the Prime minister added.
Dr. Singh further said that as a result of a number of steps taken to address the problems in India, the liquidity position in the financial system has improved considerably. He added that the Government has arranged to provide, in advance, a sum of Rs.25,000 crore to the Banking System under the Debt Waiver and Debt Relief Scheme. The limit of investment by Foreign Institutional Investors in corporate bonds was increased from US$3 billion to US$6 billion. The Prime Minister also informed the House that suitable advisories have been issued by the RBI and the Ministry of Finance to the banks to ensure that borrowers are provided adequate credit, including export credit and working capital. “Banks must also provide adequate funds in the form of investment or credit to mutual funds and NBFCs who, in turn, lend to industry, trade and business”, he added.
Following is the text of the suo motu statement made by the Prime Minister, Dr. Manmohan Singh in the Lok Sabha on the ongoing global financial crisis and its impact on India”
“I wish to make a statement on the ongoing global financial crisis and its impact on India . Honourable Members are aware that this crisis had its origins in the United States and spread quickly to Europe. While the crisis began in the housing mortgage market, it soon extended to the money market and the credit market. As a result, several financial institutions were pushed to the brink of insolvency. The US and some other developed countries have bailed out a number of financial institutions and banks. They have also taken a number of unconventional steps to infuse liquidity, recapitalize the banks and unfreeze the credit market.
The financial storm has shaken confidence in the system and precipitated a steep decline in stock markets.
It has produced a sharp slowdown in economic activity, with the prospect of a prolonged recession in industrialised countries. Many observers have described this as the worst crisis since the Great Depression of 1930s.
India, like other developing countries, is experiencing the ripple effects of the financial crisis. However, we have taken a number of steps to minimise the impact.
Our first concern was to ensure the stability of our banking system. I am happy to inform the House that the Indian banking system is not directly exposed to the sub-prime mortgage assets. Their exposure to other problem assets is also minimal. Our banks, both in the public sector and in the private sector, are financially sound, well capitalised and well regulated. There should be no fear of a failure of any bank. In particular, I wish to assure depositors in our banks that their deposits are entirely safe.
Although our banks are safe, and they are also providing credit in line with anticipated credit targets, the global turmoil has led to a contraction in other forms of commercial credit. External commercial borrowings, which are used by the corporate sector have dried up, as have international suppliers credits. This has led to a reduction in overall credit availability in the economy even though credit from commercial banks has expanded satisfactorily. This contraction produced a liquidity crisis in the system.
We have taken a number of steps to address this problem. Between July 6, 2008 to October 15, 2008, the RBI cut the Cash Reserve Ratio by a total of 250 basis points. The SLR requirements were relaxed initially by 1 percentage point and subsequently an additional window of 0.5 percentage points was introduced specifically to enable banks to draw funds to provide liquidity to mutual funds.
As a result of these steps, the liquidity position in the financial system has improved considerably. The call money rate today is around 6.8 per cent.
Government also arranged to provide, in advance, a sum of Rs.25,000 crore to the banking system under the Debt Waiver and Debt Relief Scheme. The limit of investment by Foreign Institutional Investors in corporate bonds was increased from US$3 billion to US$6 billion.
Earlier today, the RBI announced a 100 basis points cut in the repo rate which is the rate at which banks can borrow against surplus SLR securities. Government welcomes this decision. It will have a beneficial effect on the interest rate structure and, in combination with the other steps to increase liquidity, will help to support economic activity and investment. It is broadly consistent with our objective to control inflation which has already begun to moderate.
I am happy to inform Honourable Members that the Wholesale Price Index has declined in the last three weeks and, although the current rate is still high, the movement in the level of prices shows a clear deceleration in the current momentum of inflation. We expect a further reduction in the Wholesale Price Index in the next two months.
The Government is conscious of the fact that it is not enough to infuse liquidity. The liquidity must translate into expanded flow of credit to industry, trade and business. Suitable advisories have been issued by the RBI and the Ministry of Finance to the banks to ensure that borrowers are provided adequate credit, including export credit and working capital. Banks must also provide adequate funds in the form of investment or credit to mutual funds and NBFCs who, in turn, lend to industry, trade and business. These institutions are an important part of the larger financial system and banks are being encouraged to provide liquidity to ensure that there is no disruption in economic activity.
Both RBI and Government are carefully monitoring the flow of credit and will ensure that the additional liquidity infused into the system translates into actual credit. We will not hesitate to do more if needed. While the capital adequacy ratios of all our banks are well above the Basel norm and above the RBI stipulated norm, Government has promised that it will help banks, which have lower ratios, to access funds to increase their Capital Risk Weighted Asset Ratio to 12 per cent.
The financial crisis and the economic slowdown in the developed countries is likely to have an indirect impact on the Indian economy. Fortunately, this effect will be on an underlying strong performance. GDP growth in the first quarter of 2008-09 was 7.9%. During April-August, 2008, exports increased, in dollar terms by 35.1 per cent. Foreign Direct Investment, during this period was US$14.8 billion. Gross tax revenues are on target.
The CMIE database shows that a huge amount of money towards capital expenditure is in the pipeline.
Nevertheless, we must be prepared for a temporary slowdown in the Indian economy. The precise impact is difficult to estimate at this point since the depth and duration of the global slowdown remain uncertain. Some estimates project GDP growth to decelerate to 7.5 per cent in the current year. The most pessimistic estimates place it at no less than 7 per cent. Our effort will be to minimise the negative effect of the financial crisis and, once the global situation stabilises, to return to the growth trajectory of 9 per cent. I would urge Honourable Members and the people of India to continue to repose faith in the fundamentals of the Indian economy.
Honourable Members will recall that, in anticipation of a slowdown, we had stepped up public expenditure in the Budget presented on February 29, 2008. Our expenditure proposals were criticised at the time in some quarters, but I am happy to note that it is now widely acknowledged that increased public expenditure is an important part of the solution. Our expenditure on education, health, NREGP, NRHM, AIBP, JNNURM and other programmes will, I believe, stand us in good stead in these difficult times. Besides, the debt waiver and debt relief amounting to Rs.65,000 crore to 3,60,00,000 farmers will also greatly benefit our farmers and enthuse them to increase production.
India has faced challenges in the past and has overcome them. We have the strength to overcome the current challenges too. In fact, it is when India is challenged that the Indian people rise to the occasion and convert the challenge into an opportunity. There is no place for fear. This is the time for unity of purpose and resolute action.
I seek the support of all sections of this House to the measures taken by Government and the authorities.”
( SOURCE: pib)
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