New Delhi: The World Bank said on Tuesday the Chinese economy would grow next year by 7.5%, the lowest rate in 19 years even as India’s chief statistician said India could grow at a rate lower than 7.3% in 2009-10.
India, Asia’s third largest economy, has grown at 9% or higher in the past three financial years and China hasn’t grown at a rate lower than 7.5% since 1990 when it grew at 3.8%, but both countries are experiencing the fallout of a global economic slowdown brought about by a credit crisis that originated in the US mortgage market and which has since spread to other parts of the world.
Economists here said China’s slower growth wouldn’t have any impact on India, but they admitted that unless the Indian government rolled out a fiscal package, the country’s growth would be seriously compromised. China recently announced a fiscal stimulus worth $586 billion (Rs29.3 trillion).
“India’s growth will not depend on what rate China grows. China will be affected more than India because China’s dependance on exports and imports is more than us. It is a much more open economy than India,” said Suresh Tendulkar, chairman of the Prime Minister’s economic advisory council.
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Tendulkar, however, refused to put a number to India’s growth in 2009-10 because the council was analysing this year’s data to review its forecast for 2008-09. The council’s current estimate for growth in India is 7.7%.
HDFC Bank Ltd’s chief economist Abheek Barua agreed that it doesn’t make sense to lower any estimate for growth in India just because an estimate for China’s growth had been reduced. “A slowdown in China will not necessarily affect us as a G-7 slowdown will hurt China’s exports more. India...is driven more by domestic consumption. While domestic consumption is 65% of GDP for India, in the case of China it is only 45%.”
Barua, however, said the Indian government needs to announce a big fiscal package to avoid a slowdown next year. “We need a much larger package than is being talked about, around $75-$125 billion and we need it very quickly.”
Indranil Pan, the chief economist of Kotak Mahindra Bank said that while the country needed a fiscal package, this was unlikely to materialize because elections to the Lok Sabha are due next year, preventing the government from taking any “big bang” measure.
While most investment banks and research firms have lowered their estimates of growth in the Indian economy, finance minister P. Chidambaram said on Monday that economic growth this year will slow to 7.5% before bouncing back to 9% next year.
“I think we should not be in denial. We should accept the fact that growth prospects are worse than earlier expected. If we keep denying, then the urgency of any big measure will be diluted,” said Barua.
Barua said he expects India to grow at 7.3% this year and 6.7% next year. He added that next year’s forecast may have to be revised below 6.5%.
On Tuesday, Montek Singh Ahluwalia, the deputy chairman of the country’s apex planning body the Planning Commission said in a conference that India would grow at a slower-than-expected 7% in 2008-09.
The Organisation for Economic Cooperation and Development (OECD) said on Tuesday that India would grow at 7% in 2008. The organization said the current financial crisis will likely push the world’s developed countries into their worst recession since the early 1980s.
OECD said the US was likely to contract by 0.9% in 2009, Japan by 0.1% and the Euro zone by 0.6%.
AP and Reuters contributed to this story.