Muscat: The global financial crisis is expected to hurt the Indian economy more than previously anticipated, with Prime Minister Manmohan Singh on Sunday projecting gross domestic product (GDP) growth to decline to 7-7.5% next fiscal.
Although the government and the Reserve Bank of India (RBI) are battling contraction in credit growth, Singh said the fundamentals of the economy were strong and banks were safe, and promised accelerated efforts to prop up growth.
“Due to the current international economic and financial situation, our growth rate may come down somewhat next year. However, we still hope to achieve a growth rate of 7-7.5% next year,” he said, addressing the Indian expat community here.
RBI had last month said Inida’s $1.2 trillion (Rs57.36 trillion) economy may grow at 7.5% this fiscal as opposed to 9% in 2007-08. The rate in 2008-09 would be the weakest since 2005.
“The fundamentals of our economy are strong. Our banking system and financial institutions are well capitalized and secure,” Singh stressed, while noting that he had set up a high-level committee to monitor the situation.
The committee will suggest short- and long-term measures to use this opportunity to further accelerate growth, he said. Earlier in the day, addressing a meeting of Oman’s business leaders, the Prime Minister said the macro economic fundamentals of the economy were sound.
“Our domestic savings rate is 35% of our GDP and our investment rate is 37% of our GDP,” he said.
Stating that the Indian economy had witnessed rapid and sustained growth averaging 9% over the last four years, Singh said: “Our young demographic profile will lead to a further increase in these rates of savings and investment over the coming years.”
Policymakers in the world’s fastest expanding major economies of India and China are looking at boosting spending to prevent their economies from going under.
For the first time since 1997, RBI this month deployed three of its main tools to shore up growth. It cut its repurchase rate to 7.5% from 8%, reduced the amount of deposits that lenders need to set aside as reserves to 5.5% from 6.5%, and lowered the amount of money that lenders are required to keep in government bonds to 24% from 25%.
RBI said the decision was taken “to address concerns relating to the moderation in the growth momentum. Global financial conditions continue to remain uncertain and unsettled, and early signs of a global recession are becoming evident”.
Singh, who had earlier this month said the financial crisis was likely to be more severe and prolonged, added that the government was particularly focusing on the development of agriculture and rural areas. “Our financing requirements for the building of infrastructure in the next five years are estimated at $500 billion.”
The Prime Minister’s panel to address the issue includes finance minister P. Chidambaram, commerce minister Kamal Nath and planning commission deputy chairman Montek Singh Ahluwalia.