CORRECTED - PM Singh highlights bright side of crashing rupee

(Corrects first quote to read "exports" instead of "imports")

By Frank Jack Daniel

NEW DELHI (Reuters) - Prime Minister Manmohan Singh sought to soothe worries about the economy on Friday, telling parliament that the crashing value of the rupee was part of a needed adjustment that would make Asia's third-largest economy more competitive.

The speech was the veteran economist's first substantial comment to parliament since the rupee suffered its steepest ever monthly fall in recent weeks, bringing back memories of a 1991 balance of payments crisis that made Singh famous.

Reading from a written statement, the prime minister promised his government would reduce the "unsustainably large" current account deficit undermining the currency.

"Clearly we need to reduce our appetite for gold, economise the use of petroleum products and take steps to increase our exports," he said.

But he said that a weaker currency was the natural outcome of several years of high inflation, and although the rupee had overshot in the foreign exchange market its decline would bring some economic benefits.

"To some extent, depreciation can be good for the economy as this will help to increase our export competitiveness and discourage imports," he said.

Singh's deft handling of the 1991 crisis helped launch 20 years of rapid economic growth and he has since been credited as the architect of India's emergence as a serious economic power.

Now in his eighties, Singh seems to have lost some of that agility and is often pilloried for staying mostly out of the public eye while the country's economy goes from bad to worse.

In response to his parliament speech, opposition leader Arun Jaitley said Singh's track record as prime minister was of populist policies, not reform.

"If you continue to follow the course, then the legacy that you leave behind will not be the legacy that you left behind as the finance minister. That legacy was different," Jaitley told the upper house. (Reporting by Frank Jack Daniel; Editing by John Chalmers)