In­dia says 2012-13 GDP growth could hit decade-low

The Pak Banker - - Front Page -

MEX­ICO

City: In­dia’s eco­nomic growth could slow to as lit­tle as 5.5 per cent this fis­cal year, Fi­nance Min­is­ter P. Chi­dambaram told me­dia, sig­nalling the pos­si­bil­ity that Asia’s third largest econ­omy will ex­pand at its slow­est pace in a decade.

“I’m look­ing for­ward to this year end­ing with 5.5 to 6 per cent growth, bar­ring any un­ex­pected shocks, and next year get­ting back to 7 per cent growth, and in 2014-15 get­ting back to 8 per cent growth,” he said in an in­ter­view on Sun­day at a G20 meet­ing in Mex­ico.

The last time full-year growth fell be­low 6 per cent was in 2002-03 when the econ­omy ex­panded 4 per cent. A slump in in­dus­trial ac­tiv­ity be­cause of slow pol­icy-mak­ing and the global slow­down, com­bined with a drought, have dragged on In­dia’s per­for­mance this fis­cal year, which ends in March 2013.

Un­til now, the gov­ern­ment had es­ti­mated growth this year at around 6 per cent. The In­ter­na­tional Mone­tary Fund last month slashed its 2012 cal­en­dar year eco­nomic growth fore­cast for In­dia to 4.9 per cent from 6.1 per cent.

Chi­dambaram said In­dia had the where­withal to again reach its eco­nomic po­ten­tial. “In 2004-2008 we had 9 per cent plus growth. It’s not as though we have not done it be­fore,” he said. “We have slowed down thanks to the world and some do­mes­tic fac­tors, but we are ab­so­lutely con­fi­dent that we will get back to the higher-growth path.”

Chi­dambaram said he was con­cerned about in­fla­tion, which hit a 10-month high of 7.8 per cent in Septem­ber.

“We must learn to live with some in­fla­tion, but in­fla­tion can­not be at an un­ac­cept­able level. To­day it is at an un­ac­cept­able level,” he said.

In­dia’s cen­tral bank left in­ter­est rates un­changed at 8 per cent last week, de­fy­ing gov­ern­ment pres­sure to lower rates for the first time since April.

Rate cut ex­pec­ta­tions had grown af­ter Chi­dambaram out­lined a re­cent plan to cut the coun­try’s hefty fis­cal deficit and boost growth. The bank’s an­nounce­ment failed to calm mar­kets, push­ing bond yields and swap rates higher. Chi­dambaram said that with a com­bi­na­tion of mone­tary pol­icy, spend­ing cuts, and a tight­en­ing of tax col­lec­tion, In­dia could lower the deficit and fos­ter growth.

“I’m con­fi­dent that with de­ter­mi­na­tion, hard work, and some pain, we will be able to con­tain the fis­cal deficit at 5.3 per cent,” Chi­dambaram said.

The re­vi­sion in the fis­cal deficit tar­get will re­sult in ad­di­tional mar­ket bor­row­ing up to the new level, he added. The gov­ern­ment bor­rows via ru­peede­nom­i­nated bonds that for­eign in­vestors are al­lowed to trade.

“I don’t ex­pect any ad­di­tional bor­row­ing over 5.3 per cent,” he said. That level of bor­row­ing will amount to at least 200 bil­lion ru­pees ($3.72 bil­lion), a se­nior fi­nance min­istry of­fi­cial told Reuters in New Delhi.

Pre­vi­ously, the gov­ern­ment had pegged gross mar­ket bor­row­ing for the cur­rent fis­cal year at 5.7 tril­lion ru­pees ($106.04 bil­lion) to fi­nance the orig­i­nal deficit tar­get of 5.1 per cent.

The fi­nance min­is­ter also re­jected the pos­si­bil­ity that In­dia might suf­fer a rat­ings down­grade, af­ter Stan­dard & Poor’s re­cently said the coun­try faces a one-in-three chance of a credit rat­ing down­grade to junk sta­tus over the next two years.

“In­dia cer­tainly does not de­serve a down­grade and we are tak­ing steps that will con­tain the fis­cal sit­u­a­tion,” he said. The Re­serve Bank of In­dia cut its GDP growth fore­cast for Asia’s third-largest econ­omy this fis­cal year to 5.8 per cent from 6.5 per cent pre­vi­ously. It raised its in­fla­tion pro­jec­tion in March to 7.5 per cent from a pre­vi­ous 7 per cent.

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