New Delhi: Economy could be growing by 10% a year by 2012 with the right set of policies, but the US subprime crisis might trim exports and capital flows, the prime minister said on Wednesday.
Annual growth dipped to 8.9% in the September quarter, falling below 9% for the first time in three quarters, as industrial output slowed due to monetary tightening designed to trim inflation.
Top officials are confident they can maintain growth momentum despite a surge in the value of the rupee against the dollar this year, which is hurting exporters, and high interest rates.
“It is possible that with the correct set of policies ... we will not only be able to maintain this momentum of high growth into the near future but may be able to raise it to 10 percent,” Manmohan Singh told top policy makers.
India, the world’s fastest-growing major economy after China, grew 9.4% in the last fiscal year, its strongest in 18 years. Its surging expansion has attracted global investors, fuelling a stock market boom and pushing firms to expand capacity.
“This high growth rate has become possible because of the historically high savings and investment rates which we are witnessing,” Singh said at a meeting of the National Development Council set to approve a policies for the 5 years to 2012.
“Our savings rate after stagnating for almost two decades has touched 34 % of GDP and the investment rate has crossed 35%. These high rates ... are likely to go up in future because of our young population profile.”
Trade Minister Kamal Nath said on Tuesday expansion in the 2007/08 fiscal year to 31 March would be in excess of 9%, and analysts say the central bank’s forecast of 8.5% should be met in Asia’s third-largest economy.
Singh said global credit worries would not completely skirt India’s economy, despite it being largely driven by domestic demand.
“There are somes clouds on global financial markets following the subprime lending crisis. There are worries that the growth of the US and other leading economies may slow down and some may even go into a recession,” he said.
“This may impact both our exports as well as capital flows.” Such concerns mean India must redouble efforts to maintain domestic drivers of growth, the prime minister said.
The government is discussing ways to minimise the impact of the rupee’s appreciation on exporters, who have seen their margins squeezed by a 12% rise in the currency this year.
The Reserve Bank of India, keen to cool price pressures and stop the economy from overheating, raised interest rates five times between mid-2006 and March this year, but has since held them steady. Many economists now expect the next move to be down.