MUMBAI – There is “no question” of India going back to an economic crisis experienced in 1991, as its rupee currency is now linked to the market and foreign exchange reserves are adequate, Prime Minister Manmohan Singh said on Saturday.
Asia’s third largest economy is growing at its slowest pace in a decade, while the rupee, the region’s worst performer this year, is at an all-time low, and the central bank has enough cash to pay for seven months of imports.
“There is no question of going back to 1991,” Singh said in a Press Trust of India report published by the Economic Times newspaper on its website, making reference to a balance of payments crisis the country suffered that year.
“At that time foreign exchange in India was a fixed rate. Now it is linked to market. We only correct the volatility of the rupee.”
In 1991, with just enough reserves to cover three weeks of imports, India was forced to pledge its gold in order to pay its bills and had to push through reforms to start opening up the economy.
Singh was finance minister at the time and is widely regarded as the man who saved the economy.
The news agency report said Singh acknowledged India’s ballooning current account deficit, which he blamed on large imports of gold as a contributing factor.
“We seem to be investing a lot in unproductive assets,” Singh said.
India is trying to curb its citizens’ apparently insatiable demand for gold, through measures such as hiking import duties, banning the import of coins and medallions and making domestic buyers pay cash.
The government wants to hold bullion imports this year to “well below” last year’s figure of 845 metric tons.
Imports by the world’s biggest bullion buyer hit a record 162 metric tons in May as global prices fell, prompting a duty increase to 8 percent. Though they then fell to about 31 metric tons in June, imports revived to 47.6 metric tons in July.
India’s current account deficit stands at a record high of 4.8 percent of gross domestic product, while economic growth has slowed to 5 percent.
Concerns that policymakers were losing control over the currency spread this week to the stock market (.NSEI), which dropped 4 percent on Friday for its biggest one-day decline in nearly two years.