Concerned over the deteriorating global economic situation, Finance Minister Pranab Mukherjee on Wednesday said the government has limited options to combat the slowdown.
Speaking at the Delhi Economics Conclave in New Delhi, he noted that major economies worldwide, particularly those in Europe, have not yet emerged from the slowdown in late 2008 despite the aggressive use of fiscal and monetary tools.
“All these (slowdown) have happened despite the aggressive use of both fiscal and monetary policy tools… it poses serious problem for policymakers. Going forward, it limits our options in dealing with the emerging situation,” Mukherjee said.
India’s GDP growth rate slowed to 6.9 per cent in the second quarter of 2011-12 from 8.4 per cent in the corresponding period of the previous year.
In the backdrop of the continued uncertainty in the global economy, coupled with domestic factors, the government last week slashed India’s GDP growth forecast for the current fiscal to 7.5 per cent (plus/minus 0.25 per cent) from the earlier estimate of around 9 per cent.
When the economic slowdown occurred in 2008, India — like other countries — had rolled out a stimulus package of about Rs.1.86 lakh crore, or 3 per cent of the GDP, to provide a cushion to the domestic industry against external shocks.
Mukherjee’s statement comes just days before the RBI is scheduled to review the monetary policy.
Talking about the depreciating rupee, Mukherjee said in the wake of the global crisis of 2008, India received excessive capital inflows, leading to appreciation of the domestic currency.
However, “… With the unfolding euro zone crisis, a matter of concern at present, it has reversed such (capital inflows) growth, leading to increased currency volatality.
We have witnessed sharp depreciation of the rupee vis-a-vis the dollar in the last few months,” he said.
The rupee tanked 57 paise to a record low of Rs.53.80 per US dollar in early trade on Wednesday.
On persistent high inflation, the Finance Minister said it “has been a major policy concern for the last few years”.
He, however, expressed satisfaction that food inflation has started moderating. Food inflation declined to 6.6 per cent for the week ended November 26, whereas it stood at 12.21 per cent for the week ended October 22.
Mukherjee further said a slowdown in external demand has led to a deceleration in India’s exports growth, resulting in widening of the Current Account Deficit to about 3 per cent of the GDP.