Business | Economy
India's spending may be too little to prevent a growth slowdown
Indian Prime Minister Manmohan Singh's spending plan and interest rate cuts unveiled over the weekend may not be enough to prevent economic growth from slowing to the weakest pace in six years, economists say.
- Bloomberg
- Published: 23:32 December 8, 2008
New Delhi: Indian Prime Minister Manmohan Singh's spending plan and interest rate cuts unveiled over the weekend may not be enough to prevent economic growth from slowing to the weakest pace in six years, economists say.
Singh plans to allocate an extra Rs200 billion (Dh14.69 billion) as part of a total Rs3 trillion spending plan for the rest of the financial year ending March 31. The Reserve Bank of India on December 6 cut rates for the third time since October.
The size of the incremental expenditure, representing 0.3 per cent of the GDP, indicates the government wants to rely on monetary policy to stimulate growth. Lower interest rates will allow Indian companies to turn to local banks for funding rather than rely on lenders in the US and Eur-ope, where credit has dried up for many borrowers.
"No matter what steps India takes, they are unlikely to prevent growth from sliding next year," said Tehmina Khan, international economist at Capital Economics Ltd. in London.
Investment spending, the main driver of growth in recent years, has been hit hard because of the rout in stock markets and the liquidity squeeze overseas.
Forty per cent of Indian industry's funding for the year ended March 31 this year, when the economy grew at nine per cent from overseas borrowings and the sale of new shares in the stock market, Khan said.
In the year to March 31, 2009, "the moderation in growth will be more than anticipated," Governor Duvvuri Subbarao said while announcing the rate cuts. He said the 7.5 per cent growth forecast for the current year will be revised in the next monetary policy statement scheduled on January 27.
Indian stocks and the rupee rose to a three-week high on Monday and bonds gained. The rupee climbed 0.8 per cent to 49.185 a dollar.
Share this article
Popular in Business
-
Global Village
A world of fun
Revamped layout featuring four cultures to greet visitors this season
Business Editor's choice
-
India's economic growth rockets
Smashes expectations, adding pressure to raise interest rates
-
No regrets as shoppers cut holiday gift lists
Many Americans are not buying for co-workers and extended family this year
-
Emirates expects profits to cross $1b
Official confident Dubai World will tackle challenge
