The Hindu Business Line : Govt will keep interest rates low till recovery signs strengthen

Kolkata, Sept. 23 The Government is keen on continuing with the low-interest rate regime till the signs of global economic recovery become stronger, the Finance Minister, Mr Pranab Mukherjee, said here on Wednesday.

“We are not prescribing introduction of a ‘tight’ (dear) money policy at this juncture till the global economy, especially the European and the US economy, shows sufficient signs of recovery,” the Finance Minister said addressing the annual general meetings of the city-based Merchants’ Chamber of Commerce and the Bengal Chamber of Commerce and Industry.

He also referred to the benefits the Indian economy enjoyed because of relaxation of access to credit in the wake of the economic crisis. “We have relaxed the dear money policy adopted last year to give a stimulus to the Indian industry in the face of one of the worst global crisis. The stimulus has started working and Indian industry has just been out on its way to recovery.”

Mr Mukherjee said a recent IMF review attributed the global recovery primarily to Chinese and Indian economies. The Finance Minister has deliberated on this issue at the G-20 Finance Ministers’ meet as a precursor of the G-20 meet at Pittsburgh beginning on Thursday.

“There was a strong pressure that stimulus injections in the system should be discontinued.

However, we objected to that and advised our leaders that the G-20 should not consider the issue till the signals of recovery get distinctly strong.”

The RBI Governor, Dr D. Subbarao, recently said the central bank would not reverse its soft money policy unless it was “sure” about the economic recovery. The bank, however, had said that the higher deficit spending necessitated by the need to stimulate the local economy made a dearer interest rate regime as an anti-inflation measure difficult to implement.

This was tacitly acknowledged by the Finance Minister when he said, “I agree that such high fiscal deficit (6.8 per cent) is unsustainable and we have to reduce it to 5 per cent by 2011 to revisit the Fiscal Responsibility and Budget Management clauses.”

Mr Mukherjee was particularly concerned about the export outlook. “It is unfortunate that Indian export basket is not well diversified and over 60 per cent of exports are made to the US, Europe and Japan. I am afraid there may not be a significant improvement in our exports till there are strong signals of recovery of these economies,” he said.

But the Minister was hopeful that the manufacturing sector’s performance would improve in August and the quarterly economic growth would be higher than 6.1 per cent in the first quarter. “If the trend continues we will end the year at more than 6 per cent GDP growth in this fiscal,” he said.

The Minister expects the rainfall recorded in September to “substantially reduce” the earlier estimates of 14-15 million-tonne crop deficit.

“The 81 Central-sponsored reservoirs are now having 82 per cent of total water reserves as against 87 per cent during the corresponding period last year, ensuring that there will not be any water crisis in the rabi season; and if the conditions permit, we may have an early rabi crop too.

“The hydel power supply scenario has improved too,” he added.