India’s economic growth could slow to as little as 5.5 per cent this financial year, Finance Minister P Chidambaram told Reuters, signalling the possibility that Asia’s third largest economy will expand at its slowest pace in a decade.
“I’m looking forward to this year ending with 5.5 to 6 per cent growth, barring any unexpected shocks, and next year getting back to seven per cent growth, and in 2014-15 getting back to eight per cent growth,” he said in an interview on Sunday at a G20 meeting in Mexico. The last time full-year growth fell below six per cent was in 2002-03 when the economy expanded four per cent. A slump in industrial activity because of slow policy-making and the global slowdown, combined with a drought, have dragged on India’s performance this fiscal year, which ends in March 2013.
Until now, the government had estimated growth this year at around six per cent. The International Monetary Fund last month slashed its 2012 calendar year economic growth forecast for India to 4.9 per cent from 6.1 per cent.
Chidambaram said India had the wherewithal to again reach its economic potential.
“In 2004-2008 we had nine per cent plus growth. It’s not as though we have not done it before,” he said. “We have slowed down thanks to the world and some domestic factors, but we are absolutely confident that we will get back to the higher-growth path.”
Chidambaram said he was concerned about inflation, which hit a 10-month high in September. “We must learn to live with some inflation, but inflation cannot be at an unacceptable level. Today, it is at an unacceptable level,” he said.
India’s central bank left interest rates unchanged at eight per cent last week, defying government pressure to lower rates for the first time since April.
Rate cut expectations had grown after Chidambaram outlined a recent plan to cut the country’s hefty fiscal deficit and boost growth. The bank’s announcement failed to calm markets, pushing bond yields and swap rates higher.
He said with a combination of monetary policy, spending cuts, and a tightening of tax collection, India could lower the deficit and foster growth. “I’m confident that with determination, hard work, and some pain, we will be able to contain the fiscal deficit at 5.3 per cent,” Chidambaram said.