As Finance Minister Palaniappan Chidambaram forecast the economy would still be the second-fastest growing in the world despite the global financial crisis, he said that Indians must "banish thought of recession." He told an economics conference that growth would "moderate" in the current financial year to March 2009 but he was confident it would rebound in the second half of next year.
"The general outlook continues to be one of cautious optimism," Chidambaram said, promising "counter-cyclical measures" such as higher spending to improve India's dilapidated infrastructure to counter the global crisis. At the same time, he said India would likely need more time to meet its fiscal targets as the turmoil forces it to borrow and spend more.
He forecast growth for Asia's third-largest economy of 7%-8% for this year, which would make it the second-fastest-growing major economy globally after China, whose economy has also been slowing. India's economy has expanded by at least 9% for the past three years.
"The macroeconomic impact of the global financial turmoil has been muted due to the overall strength of domestic demand" in the country of more than 1.1 billion people, the finance ministry said.
Chidambaram warned the government would probably need another year to meet its goal of wiping out its revenue deficit and reining in the fiscal deficit to below 3% of gross domestic product. Analysts have been warning that India, whose combined federal and state deficits are already among the world's highest, was set to overshoot its deficit targets as a result of spending to weather the crisis.
The minister added he was open to more measures to bolster sectors suffering from the global upheaval but did not specify which ones. The government has warned the textile sector which employs some 38 million workers faces the loss of half a million jobs by April 2009 as export orders fall.
Slowing inflation could open the door to more interest rate cuts to spur the economy, Chidambaram added.
He also said there was a "silver lining" to the crisis as it could spur India to "revisit" long-delayed reforms and boost the competitiveness of its economy, long notorious for its red tape.
Copyright Agence France-Presse, 2008