Finance minister: Global slowdown to hit India’s growth prospects

Finance Minister Pranab Mukherjee Wednesday said the global slowdown will impact India's growth prospects, but expressed hope that inflation will start moderating from December. However, he maintained that the Indian economy growing at 8 per cent, down from 8.5 per cent in 2010-11, will still be a 'reason for celebrations'. Referring to the growth prospects for the current financial year, the minister said it would be impacted by the global economic slowdown. 'The news that India would grow annually at 8 per cent would be a reason for celebrations,' he said at the annual conference of Economic Editors here. Mukherjee attributed both the economic slowdown and rising inflation to global economic problems, especially the rising price of crude oil in international markets, which has remained high at around USD 105 a barrel. He attributed near double-digit inflation mainly to rising global commodity prices. 'Inflation remained sticky around 9 per cent... I expect the overall WPI inflation to decline from December and I am hopeful that we will end the fiscal with 7 per cent,' he said. Despite monetary measures taken by the Reserve Bank since March, 2010, headline inflation has remained stubbornly close to the double-digit mark. It was 9.78 per cent in August. Moreover, he added, the tight monetary policy followed by the RBI has also impacted growth during the current fiscal. The economy recorded a growth rate of 7.7 per cent in the first quarter (April-June 2011-12), the lowest in 18 months. In a bid to contain inflation, the RBI has raised key policy rates 12 times since March, 2010. 'The steady rise in policy rates was reflected in borrowings as well as lending rates with a lag,' the finance minister said, adding that though reserve money growth witnessed a deceleration, broad money growth remained above the indicative trajectory in the current fiscal. According to Mukherjee, food inflation has significantly dropped from a peak of 20 per cent in February, 2010, to about 8 per cent in June-July 2011. The minister pointed out that the source of inflation has now switched to non-food items due to imported global commodity inflation -- in particular, crude oil. About lowering the economic growth projections for this fiscal by experts, Mukherjee said, 'Most observers are expecting India's growth to go down to below 8 per cent. This is disappointing, but at the same time, we must not lose perspective of the global situation. There is a slowdown all over the world.' On the government's response to the situation, he said, 'A number of policy measures are being taken and fortunately, the long-run indicators look robust.' 'Credit offtake is also showing health trends. Last year, from April to September, bank credit grew by 19.2 per cent, which is 19.5 per cent in the same period this fiscal,' he said, adding that services have done well and agriculture is expected to grow at 3 per cent this fiscal. 'I am sure these factors would sustain growth,' he said.