PM defends reforms, asks for trust, warns against misinformation

New Delhi - 21 Sep 2012:In a televised address to the nation tonight, the Prime Minister justified the new economic reforms that have hurtled his government into a minority. "The time has come for hard decisions. For this I need your trust, your understanding, and your cooperation," he said on a day when the markets hit a 14-month high.

"Money doesn't grow on trees," he said, defending the decision to increase diesel prices and cap the supply of subsidised cooking gas to households. Reforms like opening up the retail sector to foreign investment, he said, are vital for reversing the economic slowdown and creating jobs. Targeting the opposition, which has said FDI in multi-brand retail will wipe out small store owners, he urged the country not to be misled "by those who want to confuse you by spreading fear and false information. He also referred pointedly to his track record as Finance Minister and the reforms he initiated during the global recession of 1991, and said "strong resolute steps" then had come to India's rescue then.

His speech was broadcast hours after Mamata Banerjee and her party, the Trinamool Congress, pulled out over the government's decisions to increase diesel prices, cap the supply of subsidised cooking gas to households, and allow foreign mega-stores like Wal-Mart to arrive in India. In a thinly-veiled reference to Ms Banerjee, Dr Singh pointed out that state governments can decide not to allow foreign investment in retail. "But one state should not stop another state from seeking a better life for its farmers, for its youth and for its consumers," he said.

As expected, he expounded on the need to rein in fuel subsidies by increasing diesel prices. Last year's bill was 1.40 lakh crores, he said, and that would shoot up to 2 lakh crores this year without intervention. On the cap of six subsidised LPG cylinders per household, he said more than half of India uses less than that quota every year and that poor families would not be affected.

Dr Singh's reasons have been rejected by Ms Banerjee, whose six ministers met the PM this evening to resign, and then carried onto Rashtrapati Bhawan where they formally notified the President that their party has withdrawn its support to the UPA. Ms Banerjee, also took a dig at the PM's speech on Facebook tonight. "I want to ask - what is the definition of aam aadmi? What is the definition of democracy? Is it not becoming clear that use of the name of aam aadmi, and misuse of power of chair, is to finish Aam Aadmi? Is it the game plan?" she wrote on her Facebook page.

Even the opposition concedes that the government is not in any imminent danger after Ms Banerjee's exit because regional heavyweights Mulayam Singh Yadav and Mayawati will continue to lend external support despite differences over the Prime Minister's new reforms agenda. "Unfortunately, the government will use its survival as an endorsement of its policies," said Left leader Sitaram Yechury.

Senior ministers have pointed out that between them, Mr Yadav and Mayawati contribute 43 MPs, taking the UPA safely past the 272 votes it needs to remain in power. A vote of confidence, they said, is therefore not required. But V Narayansamy, Minister of State in the PM's Office, conceded that in the new scenario "We have to see which are the reforms which we can implement without much difficulty." Mr Yadav is opposed to FDI in retail, as well as the raise in diesel prices; his stand on other reforms will be shaped by his vote bank in his home state of Uttar Pradesh, which is likely to position him against the centre. His Samajwadi Party was voted into power in Uttar Pradesh earlier this year, a victory enabled by his son, Akhilesh, who is now chief minister. Mr Yadav's support at the centre will come with strings attached - his son's government has been soliciting large financial packages and concessions from the UPA.

New reforms cleared on Friday included slashing a tax on overseas borrowing by Indian firms and implementing a scheme to encourage individuals to invest in the stock market. The government also hopes to allow more foreign investment in the insurance sector and reduce sugar subsidies for the poor - the price of sugar available under the Public Distribution System or PDS could go up byRs.3. That may not go down well with allies like Mr Yadav and the DMK, who have objected to last week's increase in diesel prices and the cap on subsidised cooking gas for households.

Dealing with Mayawati for now will be less complicated. After her humiliating defeat by Mr Yadav's party in the Uttar Pradesh elections, she needs time to rebuild her support base, and will therefore help bolster the UPA to avoid early elections.

source: NDTV.com

Full Text of PM's Speech:

My dearbrothers and sisters,

I am speaking to you tonight to explain the reasons for some important economic policy decisions the government has recently taken. Some political parties have opposed them. You have a right to know the truth about why we have taken these decisions.

No government likes to impose burdens on the common man. Our Government has been voted to office twice to protect the interests of the aam admi.

At the same time, it is the responsibility of the government to defendthe nationalinterest, and protect the long term future of our people. This means that we must ensure that theeconomygrows rapidly, and that this generates enough productive jobs for the youth of our country. Rapid growth is also necessary to raise the revenues we need tofinanceour programmes in education, health care, housing and rural employment.

The challenge is that we have to do this at a time when the world economy is experiencing great difficulty. The United States and Europe are struggling to deal with an economic slowdown and financial crisis. Even China is slowing down.

We too have been affected, though I believe we have been able to limit the effect of the global crisis. We are at a point where we can reverse the slowdown in our growth. We need a revival in investor confidence domestically and globally. The decisions we have taken recently are necessary for this purpose. Let me begin with the rise in diesel prices and the cap on LPG cylinders.

We import almost 80% of our oil, and oil prices in the world market have increased sharply in the past four years. We did not pass on most of this price rise to you, so that we could protect you from hardship to the maximum extent possible.

As a result, the subsidy on petroleum products has grown enormously. It was Rs. 1 lakh 40 thousand crores last year. If we had not acted, it would have been over Rs. 200,000 crores this year.

Where would the money for this have come from? Money does not grow on trees. If we had not acted, it would have meant a higherfiscal deficit, that is, an unsustainable increase in government expenditure vis-a-vis government income. If unchecked, this would lead to a further steep rise in prices and a loss of confidence in our economy. The prices of essential commodities would rise faster. Both domestic as well as foreign investors would be reluctant toinvestin our economy.Interest rateswould rise. Our companies would not be able to borrow abroad.Unemploymentwould increase.

The last time we faced this problem was in 1991. Nobody was willing to lend us even small amounts of money then. We came out of that crisis by taking strong, resolute steps. You can see the positive results of those steps. We are not in that situation today, but we must act before people lose confidence in our economy.

I know what happened in 1991 and I would be failing in my duty as Prime Minister of this great country if I did not take strong preventive action.

The world is not kind to those who do not tackle their own problems. Many European countries are in this position today. They cannot pay their bills and are looking to others for help. They are having to cut wages or pensions to satisfy potential lenders.

I am determined to see that India will not be pushed into that situation. But I can succeed only if I can persuade you to understand why we had to act.

We raised the price of diesel by just Rs. 5 per litre instead of the Rs 17 that was needed to cut all losses on diesel. Much of diesel is used by big cars and SUVs owned by the rich and by factories and businesses. Should government run large fiscal deficits to subsidise them?

We reduced taxes on petrol by Rs. 5 per litre to prevent a rise in petrol prices. We did this so that the crores of middle class people who drive scooters and motorcycles are not hit further.

On LPG, we put a cap of 6 subsidised cylinders per year. Almost half of our people, who need our help the most, actually use only 6 cylinders or less. We have ensured they are not affected. Others will still get 6 subsidised cylinders, but they must pay a higher price for more.

We did nottouchthe price of kerosene which is consumed by the poor.

My Dear Brothers and Sisters,

You should know that even after the price increase, the prices of diesel and LPG in India are lower than those in Bangladesh, Nepal, Sri Lanka and Pakistan.

The total subsidy on petroleum products will still be Rs. 160 thousand crores. This is more than what we spend on Health and Education together. We held back from raising prices further because I hoped that oil prices would decline.

Let me now turn to the decision to allow foreign investment in retail t rade. Some think it will hurt small traders.This is not true.

Organised, modern retailing is already present in our country and is growing. All our major cities have large retail chains. Our national capital, Delhi, has many new shopping centres. But it has also seen a three-fold increase in small shops in recent years.

In a growing economy, there is enough space for big and small to grow. The fear that small retailers will be wiped out is completely baseless.

We should also remember that the opening of organised retail to foreign investment will benefit our farmers. According to the regulations we have introduced, those who bringFDIhave to invest 50% of their money in building new warehouses, cold-storages, and modern transport systems. This will help to ensure that a third of our fruits and vegetables, which at present are wasted because of storage and transit losses, actually reach the consumer. Wastage will go down; prices paid to farmers will go up; and prices paid by consumers will go down.

The growth of organised retail will also create millions of good quality new jobs.

We recognise that some political parties are opposed to this step. That is why State governments have been allowed to decide whether foreign investment in retail can come into their state. But one state should not stop another state from seeking a better life for its farmers, for its youth and for its consumers.

In 1991, when we opened India to foreign investment in manufacturing, many were worried. But today, Indian companies are competing effectively both at home and abroad, and they are investing around the world. More importantly, foreign companies are creating jobs for our youth -- in Information Technology, in steel, and in the auto industry. I am sure this will happen in retail trade as well.

My Dear Brothers and Sisters,

The UPA Government is the government of the aam aadmi.

In the past 8 years our economy has grown at a record annual rate of 8.2 per cent. We have ensured that poverty has declined much faster, agriculture has grown faster, and rural consumption per person has also grown faster.

We need to do more, and we will do more. But to achieve inclusiveness we need more growth. And we must avoid high fiscal deficits which cause a loss of confidence in our economy.

I promise you that I will do everything necessary to put our country back on the path of high and inclusive growth. But I need your support. Please do not be misled by those who want to confuse you by spreading fear and false information. The same tactics were adopted in 1991. They did not succeed then. They will not succeed now. I have full faith in the wisdom of the people of India.

We have much to do to protect the interests of our nation, and we must do it now. At times, we need to say "No" to the easy option and say "Yes" to the more difficult one. This happens to be one such occasion. The time has come for hard decisions. For this I need your trust, your understanding, and your cooperation.

As Prime Minister of this great country, I appeal to each one of you to strengthen my hands so that we can take our country forward and build a better and more prosperous future for ourselves and for the generations to come.

Jai Hind.