By Kartik Goyal
Jan. 17 (Bloomberg) -- India’s Prime Minister Manmohan Singh said the fiscal year starting April 1 will be “difficult” and signaled policy makers may add to interest- rate and tax cuts to bolster the slowing economy.
“The difficult period will continue,” into the next fiscal year, Singh said at an awards function in Mumbai today. “The government will plan on continuing its efforts for a supporting environment next year also. Both monetary and fiscal policy will have to be tailored to that objective.”
Prime Minister Singh, seeking re-election before May, wants to boost consumption as a decline in exports forces companies to reduce production and fire workers. India may add to four interest-rate cuts since October and unveil more fiscal stimulus packages to revive an economy, which it expects to expand at the slowest pace since 2003 in the year ending March 31.
Growth in the current fiscal year may slow to between 6.5 percent and 7 percent, he said, from more than an average 9 percent in the last three years, Singh said.
“The global economic horizon is cloudier than it has been for a long time,” he said. “It will be a testing time for the economy and for individual businesses in all sectors.”
India’s overseas shipments dropped 9.9 percent in November from a year earlier after contracting 12.1 percent in October. The decline in exports and output may continue for the next two quarters, Trade Minister Kamal Nath said in a Jan. 8 Bloomberg Television interview. Industrial production grew 2.4 percent in November after declining for the first time in 15 years.
‘Ample Flexibility’
Cooling inflation will “give ample flexibility for monetary policy,” Singh said.
Inflation in India has more than halved from a 16-year high of 12.91 percent in August as a global recession drives down prices of oil and other commodities. That’s given the government and the central bank room to unveil measures to spur growth without fanning prices. Wholesale prices climbed 5.24 percent in the week to Jan. 3, the smallest increase in 11 months.
The Reserve Bank of India has slashed the benchmark repurchase rate by 350 basis points to 5.5 percent since October. To spur growth and stimulate consumer demand, India’s government on Jan. 2 unveiled a second stimulus package to inject capital into banks and allowed overseas investors to double purchases of debt.
Governments worldwide are announcing spending packages to boost growth amid a deepening global slump. China in November unveiled a 4 trillion-yuan ($586 billion) stimulus package to revive demand. Thailand said on Dec. 26 that it will spend 300 billion baht ($8.6 billion) to help an economy the government predicts may slip into a recession in the first quarter.
‘Blot’ on Image
Singh said the Satyam “episode is a blot on our corporate image and indicates how fraud and malfeasance in one company can inflict suffering on many and can also tarnish India’s image more broadly.”
Satyam Computer Services Ltd., India’s fourth-largest software exporter, is facing fraud investigation after its founder Ramalinga Raju on Jan. 7 admitted to overstating profits.
Singh, in his first public address in Mumbai after the terror attacks in November, said his government won’t spare any effort to ensure the safety of Mumbai.
Pakistan must act against the militant group Lashkar-e- Taiba and must ensure nothing like Mumbai happens again, he said. India expects Pakistan to take steps against the attackers, he said.
India has blamed the Pakistan-based militant group for the attacks that killed 164 people, raising tensions between the nuclear-armed neighbors. Pakistan has said it wanted to cooperate with India to combat terrorism.
To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net
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