Prime Minister Manmohan Singh on Friday said the sharp slide in the value of the rupee caused by external developments was a matter of concern, but India is not heading to a 1991-like crisis when the country was forced to pledge its gold to pay import bills.
“There is no reason to believe that we are going down the hill and that 1991 is on the horizon,” the prime minister said in the Rajya Sabha, the upper house of parliament.
India has around $280 billion of foreign exchange reserve, which is sufficient to finance nearly seven months of imports, he said.
In 1991, India's foreign exchange reserve had fallen to $3 billion, not enough even to cover three weeks of imports. The country was forced to pledge its gold with the International Monetary Fund (IMF) in order to pay its bills.
Manmohan Singh said the Indian economy is expected to grow at around 5.5 percent in the current financial year.
“I sincerely hope that the growth rate will be 5.5 percent in the current financial year.”
India's gross domestic product (GDP) growth slumped to a decade low of five percent in the financial year ended March 31, 2013.
The growth dipped to 4.4 percent in the first quarter of this fiscal, the worst in over four years, due to poor show of manufacturing and mining sectors, according to data released by the Central Statistics Office (CSO).
The prime minister said that while the sharp slide in the value of the rupee caused by external developments was a matter of concern, there was no question of capital controls and India would remain an open economy.
“The depreciation in the value of the rupee since end of May is a matter of concern," the prime minister told the Lok Sabha. "What triggered the sharp depreciation in rupee was the market's reaction to unexpected external developments," he added.
"Clearly, we need to reduce our appetite for gold, economise the use of petroleum products and take steps to increase our exports," he said.
At the same time, the fall in the rupee's value is good to some extent as it makes exports competitive, he added.
The Indian rupee has lost almost 20 percent against the US dollar this fiscal, largely due to pull-out by foreign funds from the Indian markets after the US central bank hinted that it would lower fiscal stimulus as the economy shows sign of recovery.
The rupee fell nearly 4 percent to hit a record low of 68.85 per dollar Wednesday, the biggest single-day percentage loss since October 1995. But the currency recovered and surged 3.5 percent to close at 66.55 against a dollar a day later.
The prime minister, who had made a brief statement on the economic situation Thursday as well, also sought to lift market sentiments on Friday with assurances on reforms.
"Last two decades have seen India grow as an open economy and benefited from it. There is no question of reversing these policies," he said. "I would like to assure the house and the world the government is not contemplating any measures on capital controls."
The prime minister said the fundamentals of the Indian economy had continued to remain strong and that both the central bank and the government were taking steps to contain inflation. He said efforts were also underway to contain the current account deficit.
“The growth-friendly way to contain the deficit is to spend carefully... We will take steps," the prime minister said, while seeking the support of political parties to pursue good policies.
"The easy reforms of the past have been done. For more difficult reforms, we need political consensus. I urge across political parties to work towards and join in the government's efforts to put the economy back on the path of stable growth," he said.