NEW DELHI: India's finance minister admitted Monday that the government had no scope to increase public spending to spur the flagging economy, but said interest rate cuts might be possible.
Shock economic growth figures published last Thursday showed the Indian economy growing at 5.3 percent in the January-March period, the slowest quarterly growth figure in nine years.
India unveiled a huge stimulus programme after the last global slowdown following the financial crisis of 2008 in the United States and Europe, but its finances are now strained as the eurozone debt crisis gathers pace.
"The second round of global uncertainty and the slowdown has come rather quickly on the heels of the previous one, with practically no headroom for running a proactive fiscal policy," Finance Minister Pranab Mukherjee said.
The government is under pressure to rein in subsidies and other spending after its budget deficit widened to 5.75 percent of gross domestic product in the fiscal year ended March 31.
For 2012/13, the government is targeting a deficit of 5.1 percent, but analysts say this is based on a very optimistic growth estimate of 7.6 percent and under current spending plans the gap could be much larger.
Mukherjee argued however that the rapid fall in global crude oil prices, which are now under $100 a barrel, could help the central bank cut interest rates further because inflationary pressures will decline.
The deputy governor of the Reserve Bank of India, Subir Gokarn, also hinted at the possibility of a rate cut on Monday, raising the chances the bank will slash the cost of borrowing again at its June 18 meeting.
Gokarn Monday told reporters in Mumbai that India's economic growth is "lower than expectations, and that may have a positive, moderating impact on core inflation", Dow Jones Newswires reported.
In April, the bank lowered interest rates for the first time in three years. It sprung a bigger-than-forecast cut of 50 basis points but also warned that further easing would be difficult.
The benchmark repo rate, at which it lends to commercial banks, fell to 8.0 percent and the reverse repo rate, which it pays banks for deposits, fell to 7.0 percent.
Also Monday, business lobby group the Federation of Indian Chambers of Commerce and Industry (FICCI) unveiled a 12-point plan to kickstart the economy, mostly by slashing interest rates and fast-tracking delayed reforms.
It called for opening up the retail sector to foreign investors, freezing welfare spending, freeing diesel from price controls and fostering competition in the state-controlled and under-performing coal industry.
FICCI president R.V. Kanoria said there had to be clear recognition from all parties "that we are in crisis situation".
-- Dow Jones Newswires contributed to this report
Comments
Comments are closed.