The India growth story is intact and the fundamentals of the economy remain strong despite the uncertainty in global markets due to the downgrading of US debt ratings by ratings agency Standard & Poor’s , finance minister Pranab Mukherjee said on Monday.
Policymakers grabbed every opportunity on Monday to calm markets and investors , saying that India was much better placed than other countries to face this challenge. But Mukherjee cautioned that the global developments may have some impact on the economy particularly on capital and trade flows.
He said foreign institutional investors (FIIs) view India as an attractive investment destination even if there is temporary outflow and the country could rather see faster and greater FII inflows in view of the higher returns that global investors could get in India. This situation is not the same as the 2008 crisis. Mukherjee assured investors that the country’s financial sector is strong and authorities are prepared to address any concern that may arise due to the recent global developments.
The finance minister said that softening of international commodity prices, especially fuel, would help check inflationary pressures in the economy and maintain the fiscal balance for 2011-12 . The government has been grappling with stubbornly high inflation which is hovering around 9%. The Reserve Bank of India has raised interest rates 11 times in about 15 months to calm price pressures . The government has made it clear that it would stick to its plan of capping the fiscal deficit to 4.6% of gross domestic product in 2011-12 .
Mukherjee said the government will fast track the implementation of pending reforms and keep a close eye on international developments . “We will encourage greater domestic consumption and give impetus to the drivers of domestic growth.” The RBI estimates the economy may grow around 8% in the current fiscal but the government has said it could be around 8.5%, while the Prime Minister’s Economic Advisory Council has pegged it at 8.2%.
Finance ministry officials also said that India has already announced its plan to mend public finances and the country’s debt-to-GDP ratio was much lower than large parts of Europe and the US. Ratings agency Standard & Poor’s said on Monday it could lower the sovereign ratings of countries like India, Japan and Malaysia, which are still to come out of the economic meltdown of 2008. TOI