Economy will stabilize in 6 months, says Montek

Economy will stabilize in 6 months, says Montek

New Delhi: India’s economy is stabilizing and will remain a favoured destination for foreign investors as normality returns to global markets, a senior government official said on Monday.

Planning Commission deputy chairman Montek Singh Ahluwalia said there had been a pick-up in credit growth and foreign capital inflows were expected to rise in coming months, adding to signs the economy was finding a footing.

“I think in the next six months, you will see the evidence of stabilization," Ahluwalia told reporters after a conference.

Earlier this month, the Planning Commission forecast economic growth of 6.3% for 2009-10. In a worst-case scenario, it said growth could fall to 5.5% if farm output was badly hit by the worst dry spell in nearly four decades.

Asia’s third-largest economy grew 6.7% in 2008-09, slower than 9% or more expansion clocked in the previous three years.

Ahluwalia said the collapse of Lehman Brothers a year ago sparked serious concerns about stabilizing the financial system, but noted the worst fears had not been realised.

“I think the capital flows into India will not be adversely affected. In fact, when (the global financial) system stabilises, I think people will recognise India remains one of the fastest-growing countries in the developing world," he said.

“I don’t think we will have difficulty in getting the amount of capital that we want. It may not go to the level that we had in 2007 but that flow was more than we needed," he said.

Foreign funds have been net buyers of $8.75 billion of Indian shares so far this year, after selling more than $13 billion last year. In 2007, foreign funds were net buyers of $17.4 billion of stocks.

Data last week showed foreign direct investment (FDI) in the first four months of 2009-10 (April-March) was $10.5 billion, down about 15% from a year earlier.

Earlier this month, the G20 finance leaders agreed on the need to continue economic stimulus until recovery was well entrenched, and strengthen financial regulations.

“We are concerned that in the guise of improving regulation, they should not be putting in place rules that end up discriminating against the developing countries," Ahluwalia said.