The global financial crisis is expected to hit the Indian economy more than previously anticipated, with Prime Minister Manmohan Singh today projecting that the GDP growth will slow down to 7-7.5 per cent in the next financial year.
As the government and the Reserve Bank of India (RBI) battle contraction in credit growth, he underlined the fact that the fundamentals of the economy were strong and banks were safe. He promised accelerated efforts to prop up growth.
“Due to the current international economic and financial situation, our growth rate may come down somewhat next year. However, we still hope to achieve a growth rate of 7-7.5 per cent next year,” he said while addressing the Indian community here. The RBI had last month said that the $1.2-trillion economy might grow 7.5 per cent this fiscal compared with 9 per cent in 2007-08.
The rate in 2008-09 would be the weakest since 2005. “The fundamentals of our economy are strong. Our banking system and financial institutions are well capitalised and secure,” Singh said, pointing to the high-level committee he has constituted to monitor the situation.
The committee would suggest short- and long-term measures to use this opportunity to further accelerate growth, he said. Earlier in the day, addressing the business leaders of Oman, he said the macro-economic fundamentals of India’s economy were sound.
“Our domestic savings rate is 35 per cent of our GDP and our investment rate is 37 per cent of our GDP,” he said. Stating that the Indian economy had witnessed rapid and sustained growth averaging 9 per cent over the last four years, Singh said: “Our young demographic profile will lead to further increase in savings and investment rates over the coming years.” Policy-makers in the world’s fastest-expanding major economies of India and China are looking at boosting spending to prevent their economies from going under.
For the first time since 1997, the RBI this month deployed three of its main tools to shore up growth. It cut its repurchase rate to 7.5 per cent from 8 per cent, reduced the amount of deposits lenders need to set aside as reserves to 5.5 per cent from 6.5 per cent, and lowered the amount of money lenders are required to keep in government bonds to 24 per cent from 25 per cent. The RBI stated that the decision was taken “to address concerns relating to moderation in the growth momentum.”
“Global financial conditions continue to remain uncertain and unsettled and early signs of a global recession are becoming evident,” it had stated.
Singh, who earlier this month said the financial crisis was likely to be more severe and prolonged, said the government was paying particular attention to agriculture and rural areas. “Our financing requirements for building of infrastructure in the next five years are estimated at $500 billion.” The prime minister’s panel to address the issue includes Finance Minister P Chidambaram, Commerce Minister Kamal Nath and Planning Commission Deputy Chairman Montek Singh Ahluwaliaa.
