Prime Minister Manmohan Singh on Monday said the global crisis had impacted corporates, banks and investor sentiment, but assured that the banking system and deposits were safe and the government would take more steps to protect economic growth.
"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 said during a meeting with India Inc to review the state of the economy in the face of the global meltdown.
He asked industry to refrain from any "knee-jerk" reaction such as large-scale layoffs, 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."
The meeting was attended, among others, by Ratan Tata, Mukesh Ambani, K V Kamath, Shashi Ruia, Deepak Parekh, K P Singh, where finance minister P Chidambaram, RBI covernor 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".
He said, "The government will take necessary monetary and fiscal policy measures on the domestic front to protect our growth rates," adding that India will also seek reform of international financial institutions to prevent recurrence of such crisis.
The Prime Minister said that Indian "banks are well regulated and also well capitalised. I think we have successfully conveyed to our people that our banking system, both in the public and private sector, is safe, and the government stands behind it and that no one should fear for the safety of bank deposits."
Detailing the several measures taken to infuse liquidity into the system to ensure adequate flow of credit, he said, "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."
Singh exuded confidence that the country's financial system would be stable and function well following recent measures, while adding that the negative impact on the real economy needs to be minimised.
"The public sector banks have been instructed to ensure that they act counter cyclically in this situation to counter the general erosion of confidence," he said.
Singh further told the industry leaders that the government was able to "act more boldly" because its efforts to contain inflation have begun to be effective.
Pointing out that expanding investment in infrastructure can play an important counter cyclical role in the current situation, he said, "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 they do not suffer from constraints of funds."
