Hong Kong / New Delhi: India may add to interest rate and tax cuts announced early this month as declining output and exports indicate Asia’s third biggest economy is headed for a deeper than expected slowdown, an official said.
The government is committed that whatever steps are required to be taken in the near future as the scenario further unfolds will be taken, Ashok Chawla, India’s economic affairs secretary, told Bloomberg in Hong Kong on Monday.
India’s industrial production declined in October for the first time in at least 15 years, adding to evidence the $1.2 trillion economy may expand at the slowest pace in six years as weaker domestic demand and waning exports force companies to cut production.
“The present priority is to ensure that the economy doesn’t slow down very much and that growth is not hampered,” Chawla said.
South Asia’s biggest economy may grow 7% in the year to 31 March from 9% or more annually in the previous three years, the government expects.
The economy may slow more than initially estimated and the central bank will revise downwards its earlier forecast of 7.5% growth in its 27 January policy meeting, according to governor D. Subbarao.
India’s economy grew 7.6% in the three months to 30 September from a year earlier, the slowest pace since 2004. To revive demand, the central bank on 6 December lowered its benchmark repurchase rate to 6.5% from 7.5%, the third cut since October. The next day the government announced a $4 billion stimulus package.
“The next budget is a couple of months away, so we have wait and watch what happens in the meanwhile and what steps are taken till then,” Chawla said. To help counter a slowdown in the construction sector, Indian state-run banks decided to cap the interest rate for home loans that don’t exceed Rs500,000 ($10,425) at 8.5%, State Bank of India chairman O.P. Bhatt said in Mumbai on Monday. Interest rates capped at 9.25% will be offered for borrowers seeking loans of less than Rs20 lakh, he said.