As his Government battles a steep fall in the value of the rupee and a stock market meltdown, Prime Minister Manmohan Singh today dismissed the possibility of a throwback to 1991 Balance of Payments crisis situation and reversing the path of globalisation of the economy.

“There is no question of going back to 1991 (Balance of Payments crisis). 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,” he told PTI.

He was speaking after the release of the fourth volume of RBI history titled ‘RBI History — Looking Back and Looking Ahead’ at a small function at his Race Course residence.

Singh said that in 1991the country had only foreign exchange reserves for 15 days. “Now we have reserves for six to seven months. So there is no comparison. And no question of going back to 1991 crisis.”

Asked if there was no basis to fears of a return to the 1991 situation, Singh said: “No. There is no question.”

Globalisation of economy

Against the backdrop of the high current account deficit (CAD) and the all-time low value the rupee has touched, the Prime Minister was asked about fears in some quarters that the country may be witnessing a throwback to 1991 crisis when gold was pledged and the country was forced to adopt a reforms programme that put it on the path of globalisation of economy.

When pointed out that CAD was still high, Singh acknowledged the problem by saying high import of gold was one of the major factors contributing to it.

“We seem to be investing a lot in unproductive assets,” he added.

Asked about criticism that the Indian economy was too much linked to the global economy and that was the reason for the current problems and whether there would be a reversal of the progress, he said: “There was no such possibility.”

He then turned to a leading economic journalist and said, “Ask him. He is the guru.”

Prime Minister Manmohan Singh favoured revisiting the possibilities and limitations of the monetary policy in a globalised and fiscally constrained economy.

He also called for a “fresh thinking” on macro—economic policy—making, its targets and instruments.

“And I would venture to think that the time has come, when we should revisit some of those areas—the possibilities and limitations of monetary policy in a globalised economy, in a fiscally constrained economy,” Singh said after releasing the fourth volume of “RBI History—Looking Back and Looking Ahead” at his residence.

He also said macro—economic policy making, targets and instruments was another area “where I feel fresh thinking is called for“.

The function was attended among others by outgoing Governor D Subbarao, former Governors C Rangarajan, Amitabh Ghosh, Y V Reddy, current and past deputy governors, Ministers of State for Finance Namo Narain Meena and J D Seelam and Planning Commission Deputy Chairperson Montek Singh Ahluwalia.

Singh expressed the hope that future Governors, including Governor—designate Raghuram Rajan, who was among the audience, would attempt to revisit some of these areas.

The remarks assume significance in the context of the current debate over RBI’s hawkish policy stance on checking inflation vis a vis government’s priority on promoting growth.

In his speech, Subbarao characterised as “inaccurate and unfair” the contention that the central bank was “obsessed with inflation, oblivious to growth concerns”.

(This article was published on August 17, 2013)
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