By Surojit Gupta / Reuters
New Delhi: India will take all necessary monetary and fiscal steps to protect economic growth with the global financial crisis now likely to be more severe and prolonged, the prime minister said on Monday.
The central bank on Saturday unexpectedly cut its main short-term lending rate for the second time in as many weeks to ease a growing cash squeeze, spur faltering economic growth and fend off damage from the financial crisis.
Analysts said the surprise central bank move, coming just a week after it left rates unchanged at a policy review, showed its concern that strains on Asia’s third-largest economy were quickly becoming more severe.
“I would like to assure each one of you that the government will take all necessary monetary and fiscal policy measures on the domestic front to protect our growth rates,” Singh told top business leaders.
“On the international front, we are working closely with other countries to ensure coordinated policy action and increased development cooperation for the containment of this crisis,” he said.
India’s economy has grown at or above 9% for the past three fiscal years, but is expected to expand less than 8% this year as the global slowdown reduces exports. Industrial output grew at an annual rate of just 1.3% in August.
“Overall, the government is closely monitoring the evolving macro-economic situation and is fully alive to its responsibilities to sustain the growth momentum of the economy at a reasonable level,” Singh said.
The ripple effects of the global credit crisis have impacted several sectors and have hurt the currency and the share market as foreign investors have exited riskier assets.
Indian policymakers have taken several measures including rate cuts, cuts in bank reserve requirements and duties to cushion the economy from the global turmoil.
“We recognise that the situation is abnormal and we need to be constantly on the alert. The situation is being watched on a day to day basis and more steps will be taken if required,” he said.
The prime minister urged industry to convert the global crisis into an opportunity and not take hasty steps, such as large scale job losses.