India's resilience to the current crisis is also a proof of how important it is to have strong government supervision of the financial sector, says Deputy Chairman of Planning Commission Montek Singh Ahluwalia in an interview with
Q With everything turning gloomier around where is India headed?
A. We are in a situation where economic conditions are not very favourable and the financial system globally is in a very bad shape. I think the Indian financial system is quite strong, the economy is sound and I think with proper management and injection of liquidity we should be able to retain a reasonable growth rate in the current year.
Q. Do you think the RBI took a little longer to cut the CRR?
A. The severity of this financial crisis is a very recent one. It’s only in the last two weeks or so that so many banks in Europe and Japan seem to be showing signs of problems. So, I think what the RBI did in two steps, was to make sure that liquidity is not a problem and there should be no uncertainty in the system. A 150 basis point reduction in CRR is a very impressive reduction.
Q. What you are doing is basically providing banks with liquidity, but that’s not enough to enable to reduce interest rates?
A. If the banks have a huge amount of liquidity they make more liquidity available at the existing interest rates. Some of the people, who have been complaining about high rates in short run, will find liquidity is available. If it turns out, 2-3 weeks down the road, that basically the conditions, with inflation pressure coming off, are right for a further reduction in interest rates, they could consider that.
Q. How do you see the current global crisis affecting India’s growth prospects?
A. India has had healthy investment boom. Yet, exports may slow down a little bit. Investment may also slow down, if there is a fall in domestic demand and it’s quite possible that the decline in stock market values can have an effect on people's expenditure. On the other hand, we have scope for increasing investment in certain areas especially in infrastructure.
Q. Your expectations for growth this year?
A. The recent statement we had made was between 7.5-8 per cent is the likely growth rate in the current year. I do not know how far the present crisis will take for the (global) economy to get back to normal. And many people because of the severity of the international crisis are now saying that India might grow at 7 percent. Now, I have to say that it is less than the previous year but by any standard it's a very good growth rate, if we can achieve it.
more on www.hindustantimes.com