INDIA GROWTH STORY: Global financial crisis not to affect India's growth: Chidambaram

Thursday, January 24, 2008

Global financial crisis not to affect India's growth: Chidambaram

India will grow at a fast clip of 8.5 per cent despite the global financial crisis and may consider interest rate cuts if capital inflows surge, Finance Minister P Chidambaram said here Thursday in what is seen as a statement aimed at calming the jittery markets.

"India's growth rate is cruising along at 8.5-8.6 per cent in the financial year 2007-08. The expectation for the next year is about 8.5 per cent," Chidambaram told journalists at the annual meeting of the World Economic Forum (WEF).

The finance minister, a member of a power-packed Indian delegation at this Swiss ski resort, said his figures had factored in the turmoil in the global financial markets and added that if it deepened "we will have to revise our numbers."

India, he said, was affected by the turbulence but was responding appropriately.

"We are concerned that it might dampen growth but I am sure we will find ways - both monetary and fiscal - to stimulate growth and keep it at where we are now."

Chidambaram's statement also came in the midst of mounting speculation in Davos about the role of India and China - the two relatively stable economies set on a high-growth trajectory - in cushioning the effects of the global turbulence.

The finance minister said India could see greater capital inflows following the aggressive interest cut of 75 basis points by the US Federal Reserve but added that the country did not want to impose capital controls.

"Our interest rates are set in order to contain inflation but if it's a dampener to growth, I suppose we will respond both through monetary measures and fiscal measures. I can't speak of the measures now," he said.

"We are not in favour of imposing capital controls but will take some measures to moderate the inflows of capital. The capital market is returning very high growth rates and perhaps that's a magnet for capital inflows."

Drawing a distinction between different types of capital inflows, Chidambaram said that there was no need to regulate "good" inflows such as foreign direct investment, remittances by non-resident Indians and revenues from tourism.

He expected the crisis to continue to unfold for the next few months until all banks and financial institutions reveal the extent of losses they have suffered.

"It's coming out in bits and pieces."

Chidambaram said India has no plans to launch a sovereign wealth fund, because India does not have a fiscal surplus - a textbook economics requirement for launching funds of that size.