Singapore: The government expects economic growth to be near 9% in the fiscal year ending in March although financial market turbulence is making it harder to achieve such growth rates, Finance Minister Palaniappan Chidambaram said on Wednesday.
He said problems stemming from the credit markets would affect India, even though only one Indian lender had exposure to U.S. subprime mortgages.
”Turbulence in the financial markets has added to the difficulties of sustaining high growth,” he said after a lecture in Singapore.
”Indian banks, save one, did not have any exposure to the subprime mortgage market and hence did not suffer any first order consequences. However, as the crisis moved from one market to another, and when it entered the credit market, the consequences of the crisis are being felt in India, too.”
Chidambaram said the government had taken steps to stimulate demand in the Indian economy.
”We believe that the measures announced in the recent budget -- including a significant reduction in the personal income tax, expanding and deepening the corporate debt market, and large outlays of public expenditure on education, health, roads, irrigation, etc. -- should encourage both domestic and foreign investors to have faith in the India growth story.”
He made no comment about a huge pay rise proposed for government employees but denied that a $15 billion debt relief scheme for small farmers was announced with elections in mind.
The fiscal deficit for 2008-2009 would be below 3%, Chidambaram said, down from a projected 3.1% in 2007-2008, and that gave him the ”fiscal space and comfort” to help farmers.