Washington: India has sustained a greater than expected impact from the global economic crisis and has “mixed” growth prospects for now, Reserve Bank of India governor Duvvuri Subbarao said on Saturday.
“Our short- and medium-term outlook is mixed. GDP growth is moderated, reflecting decelerating production, negative export growth, dented corporate margins and slowing credit demand,” he told reporters in Washington.
Subbarao said India’s fundamentals remained strong, citing its banking system and low inflation, even as it was buffeted by the global meltdown. Stable rural consumption and demand for cement and steel were positive signs, he added.
“When India starts recovery, I believe our recovery will be swift and sharp,” he said.
The government’s revised estimate of 6% GDP growth for 2009-10 was attainable, “but to go back to the 9% growth trajectory or to climb back up, we need a lot of things happening,” added Subbarao.
A stronger recovery would require a rebound in private investment demand, he said, adding the RBI had told commercial banks there was scope for banks to cut lending rates further in light of the central bank’s “aggressive policy rate adjustments” since the crisis hit last year.
“Banks did bring down their lending rates, but not, I believe, as much as should have been possible with the adjustment done by the Reserve Bank,” said Subbarao.
No Crowding Out
The central bank on Tuesday cut its key interest rates for the sixth time in seven months in fend off the steeper than expected economic slowdown.
Subbarao declined to comment on whether the RBI would cut interest rates further, but said “we are using a number of instruments” including offsetting liquidity injection measures and open-market steps that would achieve similar effects.
“To some extent the huge increase in the government borrowing programme has militated against monetary easing,” he acknowledged. But there was enough liquidity in the financial system and “no question of any crowding out happening.”
Speaking to reporters on the sidelines of the semi-annual meetings of the G-7 industrial nations and the International Monetary Fund, Subbarao said India was studying new facilities through which countries contribute to IMF resources to fight severe crises.
The expansion of the New Arrangements to Borrow (NAB) facility would open the door for major emerging economies such as India and China to contribute to the IMF.
“We are in principle committed to contributing, but we cannot make a specific commitment until we have all the details,” said Subbarao.
India wanted to know whether its lending to the IMF would be treated as international reserves and wondered “can we get it back when we want?” he said.