“At the current juncture, we are passing through challenging times economically,” Singh said in a statement in New Delhi today. “We need to work to get the economy going again and restart the India growth story. In the short run, we need to revive investor sentiment, both domestic and international.”
Singh, who assumed the finance role yesterday after Pranab Mukherjee resigned, faces a budget deficit requiring record borrowing, a paralysis in policy making that has hurt efforts to spur investment and a faltering global recovery. The rupee has slumped to an unprecedented low against the dollar, stoking elevated inflation by making imports costlier.
The currency, which touched a record low of 57.3275 per dollar on June 22, declined 0.2 percent to 57.135 today. It is down 21 percent in the past year, the worst slide among major Asian currencies. Aside from India’s deteriorating outlook, the rupee has also been hurt by Europe’s debt crisis, which has sapped demand for emerging-market assets.
In other comments on his Twitter Inc. account today, Singh said India needs to “reverse the climate of pessimism,” adding that the immediate emphasis of the government is to manage the balance of payments and boost institutional flows into India. The comments and the statement followed a meeting between the prime minister and finance ministry officials.
Mukherjee, the ruling Congress party’s nominee for the presidential poll in July, quit to take part in the election. Singh will head the finance ministry until Mukherjee’s successor is appointed, Pankaj Pachauri, communications adviser to the prime minister’s office, said in New Delhi yesterday.
Singh was finance minister in the 1990s, sparking an economic turnaround that now faces one of its sternest tests.
The prime minister’s decision to refrain from appointing a successor immediately implies he “wants to keep the portfolio with himself for some time to push stalled reforms and lift the slowing economy in order to boost confidence” said Satish Misra, an analyst at the New Delhi-based Observer Research Foundation.
Singh, 79, headed the finance ministry for five years from 1991, when India was on the brink of defaulting on some of its overseas debt. In his first two months in the job, he devalued the rupee, tackled government monopolies, cut import tariffs and tax rates, and let foreign companies take majority stakes in sectors including automobiles and pharmaceuticals.
Liberalization spurred faster growth, including an 8.4 percent expansion in the 12 months ended March 2011, before a gridlock in policy making contributed to a slowdown to 5.3 percent last quarter from a year earlier, a nine-year low.
The government’s recent setbacks include the suspension in December of plans to allow foreign companies such as Wal-Mart Stores Inc. (WMT) to open supermarkets after an ally of the ruling coalition objected. India has also foregone investment in the pension and insurance industries in recent months.
Swedish furniture retailer IKEA last week eased some of the gloom, saying it wants to open stores in India and may invest as much as 1.5 billion euros ($1.9 billion). Coca-Cola Co. said yesterday the company and its local partners plan to spend $5 billion in the country by 2020.
Mukherjee’s resignation may lead to a cabinet reshuffle as Singh tries to revitalize his development agenda to cut poverty.
Home Minister Palaniappan Chidambaram, Commerce Minister Anand Sharma, Deputy Chairman of the Planning Commission Montek Singh Ahluwalia, Chairman of the Prime Minister’s Economic Advisory Council Chakravarthy Rangarajan and Rural Development Minister Jairam Ramesh are all probable candidates to replace Mukherjee, Business Standard newspaper reported June 15.
The government projects record borrowing of 5.69 trillion rupees ($100 billion) in the year through March 2013. It aims to narrow the budget gap to 5.1 percent of gross domestic product this fiscal year, from 5.76 percent in 2011-2012.
Inflation accelerated to 7.55 percent in May, and the central bank signaled this month that price pressures are crimping scope to cut interest rates.
Fitch Ratings and Standard & Poor’s have said they may strip Asia’s third-largest economy of its investment-grade rating. The nation has struggled to pare spending on a subsidy program ranging from diesel to fertilizers.
“It’s a very messy combination of things that is going on in the economy,” said Robert Prior-Wandesforde, Singapore-based director of Asian economics at Credit Suisse Group AG. India needs to improve public finances by raising fuel prices and push forward with other reforms, such as introducing a goods and services tax, he said.
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