India will come out of slump faster, says RBI chief

India’s economic growth is expected to pick up faster than the rest of the world once a global revival begins, though it is difficult to predict when, the country’s central bank governor was quoted as saying.

In an interview with BBC World broadcast on Sunday, taken before he left for a meeting of G20 in London, RBI governor D Subbarao said Asia’s third biggest economy could be an engine for global growth.

“India can be a growth engine. Not that India can recover ahead of the world. But when recovery starts, India’s recovery is going to be sharp and rapid,’’ Subbarao said.

In January, the IMF cut its forecast for global growth in 2009 to a slight 0.5% — the weakest since World War II — from a November estimate of 2.2%.

Even though India’s exports account for 14% of its GDP, much lower than some of its Asian peers, Subbarao said the global crisis has hit the Indian economy through the financial and manufacturing sectors, and said it was difficult to predict the timing of the recovery.

The Indian economy has slowed sharply as exports were hit and consumer sentiment was dented. It is expected to expand at a six-year low of 7.1% from an average rate of around 9% in the last three years.

Subbarao said India’s financial sector remains sound, safe and well capitalized and this was because of prudent policy actions taken by the government and the central bank.

Since the global crisis hit India’s shores in September authorities have rolled out two stimulus packages, duty and rate cuts with the latest rate cut just last week to shore up growth.

G20 finance ministers on Saturday promised the IMF money to help troubled countries and said they would use their full fiscal and monetary firepower to combat the worst economic crisis since the 1930s. Subbarao said India has gained from globalisation and would not turn away from it. “Globalisation is a double edged sword. It comes with benefits and costs so I don’t think pulling out of the global system is an option for any country.’’

Agencies

Fiscal year 2010 to be more challenging, says RBI chief

Next year will be a more challenging year than this has been but the Reserve Bank of India (RBI) will continue to do everything possible to lessen the domestic effects of the global financial crisis, its chief said.

In speech released on Thursday, RBI Governor Duvvuri Subbarao said the outlook for India and the world remained uncertain and the path of the global crisis and its resolution remained unclear.

While the central bank had a roadmap, it was not possible to deploy it all in one go.

"It would be our endeavour to adapt this roadmap to the evolving global developments and implement it flexibly and pragmatically," he said.

"Our approach, as indeed of every prudent central banker around the world, has been to 'cross the river by feeling the stones'."

Subbarao said India's economic fundamentals remained strong, but developments in the real economy, financial markets and global commodity prices pointed to a period of moderating growth and declining inflation.

"The year 2009-10 will be more challenging than the current one," he said.

"The RBI will continue to be on vigil and do everything possible within its mandate to mitigate the impact of the crisis on the Indian economy."

Since mid-October, the central bank has lowered its key lending rate by 250 basis points to 6.5 percent to shield the economy from the spillover of the global credit crisis.

It has also aggressively slashed banks' reserve requirements to shore up growth, which many expect to slow to 7 percent in the fiscal year which ends in March from 9 percent in 2007/08.

The government bond market is widely expecting interest rates to fall again soon, with the benchmark 10-year bond yield dropping 30 basis points on Thursday to 5.50 percent.

Subbarao noted inflation had been declining for the four weeks before he spoke, pointing to a faster-than-expected reduction in the pace of rising prices, while a recent cut in state-set fuel prices should further ease inflation pressures.

Data on Thursday showed India's wholesale price index, its most widely watched inflation measure, rose 6.84 percent in the 12 months to Dec. 6, sharply below the previous week's 8 percent and lower than a Reuters estimate of 7.49 percent.

Source: Agencies