India can sustain 9-9.5 per cent growth

By Vipin Agnihotri

There are plenty of experts who think that US slowdown can have a negative impact on the Indian economy. But in my opinion, India’s economic foundation is good enough to sustain 9-9.5 per cent growth despite fears of a possible US slowdown.

It is worth mentioning in this regard that Asian stock markets, including Bombay and National stock exchanges, went into a tailspin earlier this week on fears of a recession in US economy. Point to be noted here is that the Indian markets bounced back after the US Fed made unprecedented cuts in interest rates on January 22.

No one will argue with the fact that it is an inter-dependent world. In other words, international financial crisis can have an impact on the economies of developing countries such as India. According to sources, Indian government is quite hopeful that the US will take measures to contain the impact of a sub-prime crisis that had threatened the financial stability the world-over.

India, one of the fastest growing major economies after China, has expanded at an average 8.6 percent over the past four years. The pivotal factor here is that India's economy is largely driven by domestic demand with exports playing a relatively minor role. In terms of statistic, it grew 9.4 percent in the 2006/07 fiscal year, its strongest in 18 years and second only to China among major economies.

But annual growth decreased to 8.9 percent in the September quarter, falling below 9 percent for the first time in three quarters, as industrial output slowed because of monetary tightening designed to trim inflation. Number of forecasts peg India's growth at around 8.5 percent for the fiscal year ending March 2009, which by the way is slower than the scorching 9.4 percent in 2006/07.

With inflation under control and hovering around 3.0 per cent, in my opinion it is the perfect time for the Reserve Bank of India to minimize the repo and the reverse repo rates by 25 to 50 basis points. The two rates at this moment of time stand at 7.75 per cent and 6 per cent, respectively.

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