Global crisis impacts India; do everything to push growth: PM

PM Manmohan Singh has said that Indian corporates and banks have been hit by shrinking global credit dampening investor sentiment, asserting that the government will take steps to sustain growth momentum.

In a meeting with captains of industry and business to assess the impact of global meltdown, he asked the industry not to show "knee-jerk reaction" such as large scale layoffs that may lead to a 'negative spiral'.



"The financial crisis has exacerbated a global downturn that was expected earlier but is now likely to be more severe and prolonged. 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.



India's first priority was to protect the 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," he said while assuring that "... our banking system both in the public and private sector is safe and government stands behind it and no one should fear for the safety of bank deposits."



The meeting was attended, among others, by Mukesh Ambani, K V Kamath, Shashi Ruia, Deepak Parekh, K P Singh, while Finance Minister P Chidambaram, RBI Governor D Subbarao and Planning Commission Deputy Chairman Montek Singh Ahluwalia were also present on Monday.



During the meeting India Inc asked the Prime Minister to inject enough liquidity and ensure slashing of interest rates to drive the economy on a high growth trajectory.



The Prime Minister asked the industry leaders to refrain from large-scale layoffs.

"While every effort needs to be made to cut cost and raise productivity, I hope there will be no knee-jerk reaction such as large-scale layoffs, which may lead to a negative spiral," Singh said.

Advising the Indian corporates not to let the global crisis shake their confidence, he said the industry "should bear in mind their societal obligations in coping with the effects of the crisis".

Pointing out that expanding investment in infrastructure can play counter-cyclical, he said, "We will review projects and programmes...to ensure that their implementation is expedited and they do not suffer from constraints of funds."

Singh said India would seek reform of the international financial institutions and improved regulation to "prevent recurrence of such crises".

The Prime Minister made these remarks ahead of the G-20 meeting being convened by US President George Bush on 15th November to address world's worst economic crisis after the Great Depression of 1929.

On its part, India Inc asked the government to pull out all stops to ensure availability of enough money to drive the economy on a high growth trajectory despite the global meltdown.

CII President K V Kamath said, "If this country has to progress, we need to set what is the growth we want, and the growth rate clearly the government has articulated is around 8 percent. If that is so, we need to work back (and see) what is the interest rate that will drive this growth."

FICCI President Rajeev Chandrasekhar said, "If we have to really address this issue (global crisis), the focus of the government without any ambiguity should be on driving growth and all the fiscal and monetary policies must be inclined to deliver growth."



The Government will set up a core group of ministers to ensure the problems faced by the industry are addressed to limit the impact of credit sqeeze on the economy, Commerce Secretary G K Pillai, who was present at the Prime Minister's meeting with the industry, said.

"It (committee) may be headed by either Prime Minister or Finance Minister," Pillai said.

Finance Minister P Chidambaram, Commerce and Industry Minister Kamal Nath and Deputy Chairman of Planning Commission Montek Singh Ahluwalia are likely to be on the panel.

Pillai said the government would react "positively" to the suggestions made to revive the housing and construction sectors, which were prime drivers of the economy.

Business leaders are concerned over the plunge in the industrial growth to 1.3 percent in August from a high of 10.9 percent in the same month a year ago, mainly on account of poor performance by the manufacturing sector which expanded by a mere 1.1 percent.

For the five-month period (April-August 2008-09), the industrial production growth rate stood at 4.9 percent, down from 10 percent during the corresponding period last year.

Under the impact of a slowdown in major economies, India's exports growth has also declined to 10.4 percent in September this year after showing a impressive expansion of over 35 percent for the April-August period.

Brazilian banks announce merger

Two of Brazil's biggest banks, Itau and Unibanco, have announced a merger that will create the biggest financial group in South America.

The new company, to be named Itau Unibanco Holding, will have assets of 575.1bn reais ($265bn).

The two banks said in a joint statement that their merger would allow them "to compete on the international stage with the biggest global banks".

Itau is Brazil's second-biggest bank and Unibanco is the third-largest.

Consolidation

Under the terms of the deal, Itau's holding company, Investimentos Itau SA, will own two-thirds of Itau Unibanco Participacoes, which will control Itau Unibanco Holding.

The remaining one-third of Itau Unibanco Participacoes will be owned by Unibanco.

Unibanco's chief executive, Pedro Moreira Salles, will be the new group's chairman, while his counterpart at Itau, Roberto Setubal, will be its chief executive.

The merger comes at a time when banks worldwide are consolidating in an effort to counter the effects of the global financial crisis.

Both Itau and Unibanco have seen big falls in the value of their shares, quoted on Sao Paulo's Bovespa exchange, since the start of this year.

However, both banks saw their share prices rise after the deal was announced. Itau's went up by 15% and Unibanco's by more than 8%

Opec head urges production cuts

Opec countries must implement agreed production cuts if they want stable oil prices, the cartel's head has warned.

Saudi Arabia, the world's biggest oil exporter, would be key to the success of any cutbacks, said Chakib Khelil.

Mr Khelil said markets were waiting for Opec countries to cut output, as agreed in Vienna last month.

Meanwhile Russia has said it will cut its oil export duties, in order to help the country's oil producers cope with declining prices.

Mr Khelil, who is also Algeria's energy and mines minister, told Algerian radio that if Saudi Arabia took its time in cutting production, oil prices could be affected.

"I think that's what the market is waiting for now - to see that there really is a reduction in the market and not take at face value the declarations of the different deciders.

"It's what is seen on the market that will affect prices."

Mr Khelil made his remarks as UK Prime Minister Gordon Brown was on a tour of the Gulf, to ask states to do more to help tackle the global economic crisis. Mr Brown had criticised Opec's decision to cut production.

The prime minister repeated his calls for a "stable" crude oil price on Sunday, citing the need for "a sustainable transition to a more low carbon emissions economy".

Qatar's Energy Minister, Abdulla bin Hamad al-Attiyah, rejected criticism over the production cuts, saying there was a lot of oil which no-one was buying because of the economic conditions.

Falling prices

The Organization of the Petroleum Exporting Countries (Opec) decided at a meeting in Vienna on 24 October to cut production by 1.5m barrels a day - about 5% - in order to halt the slide in oil prices.

Opec hopes its production cuts will lead to oil prices stabilising between $70 and $80 a barrel.

Meanwhile, Russia's export tariff cut of $85 a tonne has disappointed oil producers, who were hoping for a larger reduction.

"It was the minimum reduction and it does not significantly raise the appeal of exports," a source at one of Russia's oil companies said.

The duty was set at $287 a tonne from 1 November, down from $372.20.

Russia is the world's second-largest oil exporter, and it has been hit by falling prices. Exporters have held back oil, that would otherwise have been sold abroad.

Russia's oil export tariffs - or taxes - have been a significant part of government revenue in recent years helped by booming oil prices.

It has said it would not join Opec countries' efforts to bolster prices by cutting production, but has said it would like closer ties with the cartel and more influence on prices.

Oil hovering around $67 a barrel

The price of crude oil is hovering around $67 a barrel on expectations that demand will continue to slow as the world economy contracts.

US light, sweet crude fell 36 cents at $67.45 a barrel, while in London Brent crude declined 63 cents to $64.66.

The oil cartel, Opec, recently decided to cut output by 1.5 million barrels per day in a bid to shore up prices.

However, the price of oil has continued to fall sharply from its record of more than $147 a barrel in July.

"Demand concerns haven't gone away so that's a factor that is weighing on the oil price," said David Moore, a commodities strategist at the Commonwealth Bank of Australia.

Output cuts

BP chief executive, Tony Hayward, said on Monday that demand in the US had slowed sharply in the wake of the economic contraction.

Preliminary data showed US demand was 2 million barrels a day lower in the last four weeks, compared to the year before, he said.

Reports suggest Kuwait and Nigeria have told customers that they have applied supply cuts already, but Saudi Arabia, the world's biggest oil exporter, has yet to tell its customers of output reductions.

Over the weekend Chakib Khelil, the head of Opec, said Saudi Arabia's implementation of the cuts was essential for the success of any output reductions.

Stocks climb on hopes of recovery

European stocks rose on Monday, after climbs in Asia as several governments intervened to boost their economies.

However by early afternoon markets had pared gains, with Germany's Dax up 0.8% while France's Cac rose 0.2% and London's FTSE 100 edged up 0.4%.

The MSCI index in the Asia-Pacific region had risen 5.1% after South Korea set out a $11bn stimulus plan and India cut short-term interest rates.

But traders were cautious, saying uncertainty remained in the market.

"There is still widespread scepticism over the steps taken to unfreeze the credit markets, as it will be a while before things start looking up on a sustained basis," brokerage India Infoline said following the rate change in India.

India's Sensex rose some 440 points or 4.6%.

Banks were among the main climbers in Asia and Europe.

Societe Generale was up 2.5% after seeing profits in line with forecasts, even though these fell more than 80% during the quarter.

Deutsche Bank was also higher, adding 5.2%.

China's ICBC was up nearly 10%, Indian lender ICICI added 8% and Australia's investment bank Macquarie rose 12.4%.

Confidence

South Korea announced an 14-trillion-won economic stimulus package on Monday that helped send shares in Seoul 1.4% higher.

Miles Remington, head of Asian sales trading at BNP Paribas Securities in Hong Kong, said: "I don't think it's a massive change in direction.

"More a case of a little more confidence going forward in massively oversold stocks and ... global organized attempts to deal with the issues," he said.

Hong Kong's Hang Seng index rose 3% on hopes that lending limits would been lifted, helping small firms.

Central banks in the US, Japan, China, as well as India, have all cut borrowing costs to boost their economies in the last week.

There are growing expectations that the Bank of England and the European Central Bank will follow suit this week.

South Korea in $11bn economy plan

South Korea has announced an economic package worth around 14 trillion won ($10.9bn; £6.6bn) to boost the economy.

The stimulus plan, announced by the Ministry of Strategy and Finance, is meant to help avert a recession.

Eleven trillion won is aimed at public projects and three trillion won is for tax cuts to encourage spending.

Recent figures indicated that South Korean's third quarter economic growth reached a three-year low, as a wider global slowdown hit exports.

In light of the global slowdown the finance ministry said: "The Korean government proposes policy measures to cope with these unprecedented challenges by announcing pre-emptive, decisive and sufficient counter measures".

The government, amid fears of a repeat of the 1997-98 Asian economic crisis, has been taking steps to increase liquidity.

On Thursday South Korea signed a currency swap deal with the US Federal Reserve, valued at $30bn.

And the country recently reduced its interest rate to 4.25% from 5% during an emergency meeting as a fillip to the economy