India will keep growth high and inflation low: Chidambaram

Davos, Jan 25 (IANS) India’s Finance Minister P. Chidambaram told business leaders at the World Economic Forum (WEF) here Friday that India would guard against the “double whammy” of high prices and economic slowdown as a possible fallout of the current US financial crisis.

But if the choice were between maintaining high growth and keeping prices down, he would choose the latter in the interests of India’s poor, Chidambaram told a forum that has been keenly watching India’s response to the US economic slowdown amid speculation of a recession.


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“If the slowdown is accompanied by continued high commodity prices, that’s a double whammy so one would have to steps to moderate inflation,” Chidambaram told a panel discussion where he was speaking alongside business leaders and economists.

The finance minister said India has “to do everything” to keep growth high and inflation low.

“Please remember that the other side of the economy is just as important to a developing country. Inflation must be kept low. Between inflation and growth what hurts the poor most is inflation. Therefore I must keep inflation low and aim for a reasonably high rate of growth.

“But if there is high rate of growth and high inflation” then that was a double whammy that would have to be dealt with through “carefully calibrated policy stimuli”.

If India’s growth rate slows down from 8.5 to 8 percent it would need an active policy intervention. But the country would be in “greater trouble if inflation rises to 6 or 7 percent”.

His attempt in the current climate would be to keep the economy along the current trajectory of less than four percent inflation and above eight percent growth rate.

Speaking a day after France’s Societe Generale, one of Europe’s biggest banks, declared staggering losses of $7.1 billion due to rogue trading, Chidambaram said India would be affected by the current global crisis if it spread to the European market and led to a decline in India’s exports to Europe.

Asked whether India and China could help cushion the worst effects of the current financial crisis, he said the difference between India and China was that Indian growth was investment and consumption-led and less dependent on exports.

“But if there’s a slowdown not only in the US but also in Europe and other parts of the world, it will affect our exports,” he said.

He said India would be affected less than China, adding: “As long as we can ensure that investment is buoyant and consumption rises steadily we can moderate the impact of a US slowdown.”

He gave a thumbs up to the US, saying the country had the ability to bounce back from its current troubles which did not indicate a recession.

“If one has to believe Alan Greenspan (former chairman of the US Federal Reserves), there is no conclusive evidence of a recession. If the US economy grows by 1 to 1.5 percent a year that’s not a recession – that’s a slowdown and the US economy can bounce back.

“What gives me confidence that the US economy will bounce back as it that is a very innovative and inventive society. Its knowledge based, and can quickly recover with appropriate policy stimuli.”

He said his hunch was that the US would probably slow down, growing at 1 to 1.5 percent for the next two to three quarters before bouncing back.

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