Publications
Partners
New Delhi - India's finance minister admitted on Monday that the government had no scope to increase public spending to spur the flagging economy, but said interest rate cuts might be possible.
Shock economic growth figures published last Thursday showed the Indian economy growing at 5.3% in the January-March period, the slowest quarterly growth figure in nine years.
India unveiled a huge stimulus programme after the last global slowdown following the financial crisis of 2008 in the United States and Europe, but its finances are now strained as the eurozone debt crisis gathers pace.
"The second round of global uncertainty and the slowdown has come rather quickly on the heels of the previous one, with practically no headroom for running a proactive fiscal policy," Finance Minister Pranab Mukherjee said on Monday.
The government is under pressure to rein in subsidies and other spending after its budget deficit widened to 5.75% of gross domestic product in the fiscal year ended March 31.
For 2012/13, the government is targeting a deficit of 5.1%, but analysts say this is based on an optimistic growth estimate of 7.6% and under current spending plans the gap could be much larger.
Mukherjee argued however that the rapid fall in global crude oil prices, which are now under $100 a barrel, could help the central bank cut interest rates further because inflationary pressures will decline.
In April, the Reserve Bank of India lowered interest rates for the first time in three years. It sprung a bigger-than-forecast cut of 50 basis points but also warned that further easing would be difficult.
The benchmark repo rate, at which it lends to commercial banks, fell to 8.0% and the reverse repo rate, which it pays banks for deposits, fell to 7.0%.
