Business | Economy
Capital outflows may have stabilised
India has room to ease monetary policy further over the next year to boost growth amid the deepening global recession, the government said yesterday.
- Bloomberg
- Published: 23:42 December 23, 2008
New Delhi: India has room to ease monetary policy further over the next year to boost growth amid the deepening global recession, the government said yesterday.
"An aggressive monetary policy may be necessary if the global economic depression continues to adversely affect manufacturing," the finance ministry said in its mid-year review of the economy presented in parliament yesterday.
Prime Minister Manmohan Singh, seeking re-election before May next year, is trying to sustain consumption as a decline in exports forces companies to cut production and fire workers.
The government on December 7 announced a Rs200 billion (Dh14.68 billion) stimulus package to prop up consumer spending, a day after the central bank's most recent interest-rate cut.
Second stimulus plan
Indian companies should prepare for economic growth of 7 per cent in the year ending March 31, down from 9 per cent or more in the previous three years, the government said yesterday, giving a range of 7 per cent to 8 per cent for growth in Asia's third- largest economy this fiscal year.
Indian exporters have cut about 65,500 jobs as recessions in the US and Europe, the nation's biggest markets, damped overseas demand. India's industrial production fell 0.4 per cent in October, the first decline in 15 years, and exports plunged 12 per cent.
The economic expansion in the current fiscal year is "likely to be significantly lower in the second half as the impact of slower export growth and weaker domestic demand, including a possible dampening of private investment, begin to be felt," the ministry said. Growth was 7.8 per cent in the first half.
India may announce a second installment of the stimulus plan soon to help exporters, Trade Minister Kamal Nath said on December 11.
India's inflation rate fell to below the central bank's 7 per cent year-end target for the first time this year in early December, enabling Governor Duvvuri Subbarao to focus on supporting the $1.2 trillion economy.
The central bank lowered the benchmark repurchase rate by 2.5 percentage points to 6.5 per cent in three cuts from October 20 to December 6.
"The decline in the inflation rate is expected to continue for the rest of the current fiscal year," the finance ministry said.
That may help increase disposable incomes and boost consumption in the next four quarters, it said.
Meanwhile, India's inflation may slow to 5 per cent by the March 31 fiscal year-end, Chief Economic Adviser Arvind Virmani said in New Delhi yesterday.
Wholesale prices increased 6.84 per cent in the week to December 6 from a year earlier after gaining 8 per cent the previous week. The decline in global crude oil prices will help the Indian economy, Virmani said.
Mumbai (Reuters) Capital outflows from India seem to have stabilised, the current account deficit is still within limits and pressure on the rupee has abated, a top economic adviser to the prime minister said yesterday.
"Even after the depletion because of FII [foreign institutional investor] outflows, the foreign exchange reserve position is comfortable," Suresh Tendulkar, chairman of the prime minister's Economic Advisory Council, said in a speech at a business conference.
Reserves
India's foreign exchange reserves have fallen to around $250 billion (Dh917.5 billion) in mid-December from a record $316.2 billion in May as foreign investors dumped stocks and exports slowed.
He said India's economic fundamentals were robust but added economic growth may slow by a couple of percentage points from last fiscal year's rate.
"I am not denying for a moment that the times are harder than you have experienced in the last five years," he said.
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