Ahluwalia for more stimulus measures to stir growth

India has to continue with further stimuls measures to keep the growth momentum, said Montek Singh Ahluwalia, deputy chairman of the Planning Commission, at the Confederation of Indian Industry's annual conference in New Delhi today.

The new government that takes over after the general elections in May will need to take steps to try and maintain the current year's economic growth, Ahluwalia said.

The new government must spend as much as 1 per cent of GDP as extra stimulus, Ahluwalia said

The Manmohan Sing government has injected about Rs.4.3 trillion ($85 billion) into the economy since September, India's cabinet secretary K M Chandrasekhar, said at the same meeting. The impact of the global financial crisis was first felt in India in that month with a freeze in the credit market.

The International Monetary Fund has urged countries to spend at least 2 per cent of gross domestic product on stimulus, estimating that only Saudi Arabia, Australia, China, Spain and the US will introduce budget boosts worth that much this year.

The Indian economy could grow only 6.5 per cent in the current fiscal year ending March 31, missing the government's target for a 7.1 per cent expansion, Ahluwalia noted adding that the growth will almost remain the same for 2009-10.

The IMF estimates India's growth will be 6.3 per cent in the current fiscal year and will slow to 5.3 per cent in the year starting April 1

The Reserve Bank of India governor D Subbarao, who addressed the CII meeting on the first day said the central RBI is in touch with commercial banks to address the issue of lowering the lending rates. (See: RBI asks banks to ease lending rates)

RBI has taken several measures in the recent past to stimulate growth. The central bank has lowered both its lending rate and the percentage of deposits commercial banks have to keep aside as cash by 4 percentage points to 5 per cent since early October. It has also cut the borrowing rate by 2.5 percentage points over the same period to 3.50 per cent.

Prime Minister Manmohan Singh's tax cuts and extra spending plans are straining government finances, with the budget deficit forecast to widen to 6 per cent of GDP in the year ending March 31, from a target of 2.5 per cent. The deficit will exceed 6 per cent, Ahluwalia said today.

The impact of fiscal and monetary steps already taken by India may be seen in the first three months of the new financial year, Ahluwalia said. Still, India's economic woes may not be resolved in the next 12 months, during which growth may be slower than in the current year, he said.

India's economic growth, which averaged 8.6 per cent in the past four years, declined to lower levels mainly due to decline in flow of foreign funds.

The global recession is also disruptive, Ahluwalia said.

''This is such a huge shock, it will push us off our underlying growth process of just under 9 per cent,'' Ahluwalia said. India's rural economy has been insulated from the global slump, he said.

The finance ministry's top economist Arvind Virmani earlier said there is no deflation risk in India.

Inflation in the next fiscal year is not likely to drop below zero, Virmani said at the same meeting today. The wholesale price index, the key inflation benchmark, would average ''zero, plus or minus 2 per cent'' in the next fiscal year, Virmani said.

The government will need to borrow a record Rs.3.62 trillion ($71 billion) next year, acting finance minister Pranab Mukherjee said on February 16.

Indian government debt is the equivalent of 80 per cent of the nation's GDP.