Prime Minister Manmohan Singh on Monday said the global crisis had impacted Indian corporates, banks and investor sentiment, but assured that the banking system and deposits were safe and the government would take more steps to protect economic growth.

"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 during a meeting with India Inc to review the state of the economy in the face of the global meltdown.

He asked industry to refrain from any "knee-jerk" reaction such as large-scale layoffs, which might lead to a negative spiral, and said "industry must bear in mind its societal obligations in coping with the effects of this global crisis", which the Prime Minister felt "is now likely to be more severe and prolonged".

"Our first priority was to protect the Indian 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."

The meeting was attended by Ratan Tata, Mukesh Ambani, K V Kamath, Shashi Ruia, Deepak Parekh, K P Singh, where Finance Minister P Chidambaram, RBI Governor D Subbarao and Planning Commission Deputy Chairman Montek Singh Ahluwalia represented the government.

Singh said additional liquidity and reduction in repo rate will help to "provide credit at reasonable rates". He said, "The government will take necessary monetary and fiscal policy measures on the domestic front to protect our growth rates," adding that India will also seek reform of international financial institutions to prevent recurrence of such crisis. 

Inviting the industry to join government's effort to convert this global crisis into an opportunity for India, the Prime Minister said that the country's high savings and investment rates have been a great strength in the recent past and "we hope that the Indian corporate sector will not let the global crisis shake its confidence."

"While every effort needs to be made to cut costs and raise productivity, I hope there will be no knee jerk reaction such as large scale lay-offs which may lead to a negative spiral... Government and industry must act in a true spirit of partnership to meet the challenges that lie ahead."

While promising all necessary measures on domestic front, Singh said, "On the international front, we are working closely with other countries to ensure coordinated policy action and increased development cooperation for the containment of this crisis." 

The government will set up a high-powered committee to ensure the problems faced by the industry, including liquidity crunch and high interest rates, are resolved and the impact of the global credit crisis on the Indian economy is minimised and job cuts are avoided.

"It (committee) may be headed by either Prime Minister or Finance Minister," Commerce Secretary G K Pillai said after industry leaders raised a host of issues in a meeting with Prime Minister Manmohan Singh.

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 committee.

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.

Assocham president Sajjan Jindal, who was present in the meeting, said that the Prime Minister is setting up a group to see that "this fear (job cuts) is not there and to see that there is no reduction in job creation."

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

For the five month period (April-August 2008-09), the industrial production growth rate stood at 4.9 per cent, down from 10 per cent 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 per cent in September this year after showing an impressive expansion of over 35 per cent for the April-August period.