(Recasts, adds quotes on government borrowing)
By Gabriel Stargardter
MEXICO CITY, Nov 4 (Reuters) – India’s economic growth could
slow to as little as 5.5 percent this fiscal 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
percent growth, barring any unexpected shocks, and next year
getting back to 7 percent growth, and in 2014-15 getting back to
8 percent growth,” he said in an interview on Sunday at a G20
meeting in Mexico.
The last time full-year growth fell below 6 percent was in
2002-03 when the economy expanded 4 percent. 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 6 percent. The International Monetary Fund last month
slashed its 2012 calendar year economic growth forecast for
India to 4.9 percent from 6.1 percent.
Chidambaram said India had the wherewithal to again reach
its economic potential.
“In 2004-2008 we had 9 percent 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 of 7.8 percent 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.
MORE BORROWING
India’s central bank left interest rates unchanged at 8
percent 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.
Chidambaram said that 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
percent,” Chidambaram said.
The revision in the fiscal deficit target will result in
additional market borrowing up to the new level, he added. The
government borrows via rupee-denominated bonds that foreign
investors are allowed to trade.
“I don’t expect any additional borrowing over 5.3 percent,”
he said.
That level of borrowing will amount to at least 200 billion
rupees ($3.72 billion), a senior finance ministry official told
Reuters in New Delhi.
REJECTS IDEA OF A DOWNGRADE
Previously, the government had pegged gross market borrowing
for the current fiscal year at 5.7 trillion rupees ($106.04
billion) to finance the original deficit target of 5.1 percent.
The finance minister also rejected the possibility that
India might suffer a ratings downgrade, after Standard & Poor’s
recently said the country faces a one-in-three chance of a
credit rating downgrade to junk status over the next two years.
“India certainly does not deserve a downgrade and we are
taking steps that will contain the fiscal situation,” he said.
The Reserve Bank of India cut its GDP growth forecast for
Asia’s third-largest economy this fiscal year to 5.8 percent
from 6.5 percent previously. It raised its inflation projection
in March to 7.5 percent from a previous 7 percent.
($1 = 53.7550 Indian rupees)
(Editing by Kieran Murray, Frank Jack Daniel and Richard
Borsuk)
