By IANS
New Delhi/Davos : As worrying signals emerged on the adverse impact of a possible US recession on India, both Prime Minister Manmohan Singh and his Finance Minister P. Chidambaram Friday sought to tone down such fears with some reassuring talk on the country’s strong economic fundamentals and high growth.
“The fundamentals of Indian economy are sound,” the prime minister said during a joint press interaction in the Indian capital with visiting French President Nicolas Sarkozy.
“As of now, we are convinced that notwithstanding what is happening elsewhere in the world, we can sustain the growth momentum of the country at 9-9.5 percent per annum,” the prime minister said.
In far away Davos, at the annual meeting of the World Economic Forum (WEF) where the focus this year was on the US slowdown, Chidambaram said India will do everything possible to not only lift economic growth but also keep 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,” he said.
Manmohan Singh said since the world was becoming increasingly interdependent, an international financial crisis could impact on the growth of emerging countries, including India’s.
“We sincerely hope US authorities will take appropriate and credible measures to contain the damage caused by the subprime crisis in that country,” the prime minister said.
“As far as the Indian economy is concerned, we are not affected in the sense our banks don’t have lending of that sort, which has led to the crisis,” he said, as he referred to the turmoil in the US caused by indiscriminate lending.
The prime minister’s comments came a day after an agreement between the leaders of the US House of Representatives and the George W. Bush administration on a $150 billion package to avoid an economic recession in the US.
The package included payments to some 115 million Americans to help overcome the mortgage crisis and new tax breaks for both large and small companies in a bid to step up investments.
Fears of a recession had rocked stock markets across the globe, including India where a key index fell by close to 20 percent Monday and Tuesday and wiped out some $300 billion in market capitalisation.
Chidambaram, whose pep talk earlier this week had helped in lifting the market sentiments in India, said the country might be affected by the current global crisis if it spread to the European market and led to a decline in India’s exports.
Asked if 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 spoke up for 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.