In­dia’s slow­down spurs rate de­bate

The Star Early Edition - - BUSINESS REPORT - Manoj Kumar New Delhi

IN­DIA’S eco­nomic growth prob­a­bly slowed to about 5 per­cent in the three months to Septem­ber, slip­ping from 5.7 per­cent in the pre­vi­ous quar­ter, two se­nior Fi­nance Min­istry sources said, putting pres­sure on the cen­tral bank to cut in­ter­est rates.

The sources said Fi­nance Min­is­ter Arun Jait­ley would ar­gue force­fully for Re­serve Bank of In­dia (RBI) gov­er­nor Raghu­ram Rajan to lower in­ter­est rates when the two met ahead of a decision on rates on Tues­day.

Six months after Prime Min­is­ter Naren­dra Modi swept to power with a prom­ise that “bet­ter days are com­ing”, growth of 5 per­cent would be a se­ri­ous slip back from the pre­vi­ous quar­ter and falls far short of the 8 per­cent that Asia’s third-largest econ­omy needs to cre­ate enough jobs for its grow­ing work­force.

Of­fi­cial gross do­mes­tic prod­uct (GDP) fig­ures are due for re­lease on Fri­day.

In­dian fi­nance min­is­ters of­ten “jaw­bone” the RBI on in­ter­est rates, but Jait­ley’s calls have be­come un­usu­ally in­sis­tent of late.

Aides say that he will make the case for cuts force­fully when he meets Rajan.

“A rate cut is the only hope for an in­dus­try fac­ing poor do­mes­tic and ex­ter­nal de­mand,” one of­fi­cial said.

Rajan has re­sisted calls to cut the RBI’s 8 per­cent repo rate, even though re­tail price in­fla­tion has dipped be­low the 6 per­cent tar­get he wants to hit by Jan­uary 2016.

The hawk­ish for­mer In­ter­na­tional Mon­e­tary Fund chief economist has made it his mis­sion to in­tro­duce in­fla­tion tar­get­ing to In­dia, a coun­try long plagued by dou­ble-digit price rises that hurt the more than 700 mil­lion peo­ple who live on $2 (R22) a day or less.

So while fac­tors such as weak in­ter­na­tional oil prices and flag­ging ex­port de­mand have prompted Asia’s top two economies, China and Ja­pan, to take ag­gres­sive ac­tion to ease mon­e­tary pol­icy, Rajan has held out.

Pol­i­cy­mak­ers in New Delhi say the RBI should follow suit, ratch­et­ing up the pres­sure on a cen­tral bank that en­joys pol­icy au­ton­omy but lacks the kind of in­de­pen­dence en­joyed by cen­tral banks in the West.

“Rajan would have to re­ally work hard to con­vince the fi­nance min­is­ter why he will not cut in­ter­est rates this time,” said another Fi­nance Min­istry of­fi­cial.

Jait­ley has so far vowed to up­hold a fis­cal deficit tar­get of 4.1 per­cent of GDP, but his aides cau­tion that any fur­ther cuts in spend­ing that the gov­ern­ment has to make to hit it could fur­ther sap growth. – Reuters

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