New Delhi: India's economy will grow 8 per cent this fiscal year and rebound to 9 per cent next, the finance minister has said, despite the rout in global markets which has triggered recession fears in industrialised nations.
"There is a storm blowing across the world. India will be affected to some extent, although indirectly, but Indian business and industry have placed India in a situation where we can weather the storm," Palaniappan Chidambaram said.
The remarks made at an award ceremony for top businessmen late on Monday were released by the finance ministry on Tuesday.
Indian stocks have taken a battering in recent weeks and the rupee on Tuesday weakened beyond 48 to the dollar to its lowest since December 2002 as investors cut their exposure to riskier assets amid the financial turmoil.
Chidambaram cited robust revenues, exports and investment planned by Indian corporates as major positive factors which would help India through the global crisis. "Huge capacities are being added in power, steel, commercial vehicles, passenger cars and two wheelers," he said.
"What is there to fear? There is nothing to fear but fear itself." Economists have said Asia's third-largest economy, which expanded at a rapid clip of 9 per cent or more in the previous three years, would likely grow about 7.5 per cent this fiscal. Growth in the June quarter eased to an annual 7.9 per cent, the slowest pace in 3-½ years, losing momentum as services slowed sharply and higher oil prices and interest rates weighed.
A survey by a leading industry lobby group on Monday showed rising raw material costs, wages and interest rates hurting corporate profits and growth over the next six months.
The survey of 348 firms by the Federation of Indian Chambers of Commerce and Industry showed half were reconsidering or deferring investments and expected growth to remain the same or worsen over the next two quarters.
The $700 billion US rescue fund, ad hoc measures by European governments and massive injections of funds by central banks around the world have not been able to stop confidence in the financial system from evaporating or growing fears the global economy is on the path to recession.
"We will remain vigilant. Our regulators have shown great agility. Going forward, we can still end this year with a growth rate of 8.0 per cent. I am confident that in 2009/10, the growth rate will bounce back to 9.0 per cent," Chidambaram said.
The Reserve Bank of India (RBI) on Monday cut the cash reserve ratio (CRR) for banks to alleviate a cash squeeze caused by the global financial crisis, while the capital-markets regulator removed curbs on indirect investment notes to help encourage inflows.
The RBI has warned of global and local risks to growth in the short term, although long-term prospects were robust. Annual wholesale price inflation has eased to just below 12 per cent but price pressures remain.
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