NEW DELHI: India must brace itself for slower growth due to worldwide financial turmoil, Prime Minister Manmohan Singh warned yesterday, as the central bank cut a key lending rate to shore up the economy.
India was experiencing the “ripple effects” of the worst financial crisis in nearly 80 years and “must be prepared for a temporary slowdown,” Singh told Parliament in his first public statement on the impact of the credit tremors.
But “once the global situation stabilizes, we will return to the growth trajectory of nine percent”, he promised in a nationally televised speech.
His statement came just hours after the central bank cut the repo — the rate at which it lends funds to commercial banks — by a surprise full percentage point to eight percent to bolster the economy.
The cut cheered investors who drove up shares by 2.48 percent or 247.74 points — back above the psychologically key 10,000 level to 10,223.09.
But India’s leading Sensex 30-share index is still down by half since the start of 2008 while the rupee is nudging five-year lows as risk-averse foreign investors dump Indian assets.
The rate cut marked a turn in a hiking cycle that began in 2004 to fight inflation which now appears to be easing from levels of over 11 percent.
“There is no place for fear,” said Singh, credited with initiating the opening of India’s economy to the world in the 1990s during an earlier stint as finance minister.
“This is the time for unity of purpose and resolution of action,” he said to thumps of approval from members of parliament.
Singh said India faced no risk to its banking sector as in the developed world where some countries like Britain have been forced to stage massive bank bailouts to restore confidence in their financial systems.
India’s tightly regulated banks were financially sound, he said.
“There should be no fear of a failure of any bank,” Singh said after the nation’s largest private bank ICICI, viewed as one of the nation’s most solid, was buffeted earlier this month by depositor panic about its solvency.
The government aimed to minimize the slowdown by increasing spending on infrastructure and other projects, Singh said, calling it “an important part of the solution.”
