Indian Prime Minister Manmohan Singh's spending plan and interest rate cuts unveiled over the weekend may not be enough to prevent economic growth slowing to the weakest pace in six years, economists say, Bloomberg reported.
Singh plans to allocate an extra 200 billion rupees ($4 billion) as part of a total 3 trillion rupee spending plan for the rest of the financial year ending March 31. The Reserve Bank of India on Dec. 6 cut rates for the third time since October.
The size of the incremental expenditure, representing 0.3 percent of the gross domestic product, indicates the government wants to rely on monetary policy to stimulate growth. Lower interest rates will allow Indian companies to turn to local banks for funding rather than rely on lenders in the U.S. and Europe, where credit has dried up for many borrowers.
"No matter what steps India takes, they are unlikely to prevent growth from sliding next year," said Tehmina Khan, international economist at Capital Economics Ltd. in London. "Investment spending, the main driver of growth in recent years, has been hit hard" because of the rout in stock markets and the liquidity squeeze overseas.
Forty percent of Indian industry's funding in the year ended March 31 this year, when the economy grew at 9 percent, came from overseas borrowings and the sale of new shares in the stock market, Khan said.
In the year to March 31, 2009, "the moderation in growth will be more than anticipated," Governor Duvvuri Subbarao said while announcing the rate cuts. He said the 7.5 percent growth forecast for the current year will be revised in the next monetary policy statement scheduled on Jan. 27.
