India may add to the interest rate and tax cuts announced early this month as declining output and exports indicate Asia’s third-biggest economy is headed for a deeper than expected slowdown, a government official said.
“The government is committed that whatever steps are required to be taken in the near future as the scenario further unfolds will be taken,” Economic Affairs Secretary Ashok Chawla said in an interview in Hong Kong today.
The country’s industrial production declined in October to -0.4 per cent, in the negative territory for the first time in more than 15 years, adding to the evidence that the $1.2 trillion economy may expand at the slowest pace in six years as weaker domestic demand and waning exports force companies to cut production. Investor sentiment has also been shaken by terror attacks in Mumbai last month, which killed nearly 200 people and left more than 300 injured.
“The present priority is to ensure that the economy doesn’t slow down very much and that growth is not hampered,” Chawla said. “That is the main objective at this point.”
Weaker production and exports may hurt the country’s economic expansion. India’s growth may fall to 7 per cent in the year to March 31 from 9 per cent or more annually in the previous three years, the government expects. The country’s exports fell for the first time in seven years in October.
The economy may slow more than initially estimated and the Reserve Bank of India (RBI) will revise downwards its earlier forecast of 7.5 per cent growth rate in its January 27 policy meeting, according to RBI Governor D Subbarao. The economy will face a period of “painful adjustment” as the world sinks into recession, the central bank said December 6.
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India’s economy expanded 7.6 per cent in the three months to September 30 from a year earlier, the slowest pace since 2004.
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To revive demand, the RBI on December 6 lowered its benchmark repo rate to 6.5 per cent from 7.5 per cent, the third cut since October. The next day the government announced a $4 billion stimulus package.
“The next budget is a couple of months away, so we have to wait and watch what happens and what steps are taken till then,” Chawla said.
Concern over companies cutting production and losing profits has seen the Bombay Stock Exchange’s (BSE’s) benchmark Sensex decline 51 per cent this year. Overseas investors have sold $13 billion of Indian shares this year, compared with $17.2 billion of share purchases in 2007.
To help counter a slowdown in the construction sector, the state-run banks decided to cap the interest rate for home loans of up to Rs 5 lakh at 8.5 per cent, State Bank of India Chairman OP Bhatt said in Mumbai today. Interest rates capped at 9.25 per cent will be offered for borrowers seeking loans of between Rs 5 lakh and Rs 20 lakh, he said.
India’s steel production fell 0.5 per cent in October, compared with a 4.7 per cent gain in September, according to the government. Cement production in October grew at 6.2 per cent, slower than 7.9 per cent in September.