India recovering, 7-8 per cent GDP growth in 2008-09: Kamal Nath

Union minister of commerce and industry Kamal Nath expects India's economy to grow at 7-8 per cent in fiscal 2008-09 even as real GDP growth of the country stood at 7.8 per cent in the first half of the fiscal year.

He also discounted the projections made by the International Monetary Fund (IMF) that India and China would grow at 5 per cent and 6.7 per cent respectively in 2009 as global growth falls to a 60-year low of 0.5 per cent – the lowest since World War II.

Speaking at the breakfast session of Boston Consulting Group (BCG) on `Defying the downturn: How Rapidly Developing Economies are Dealing with the Global Slowdown' at the World Economic Forum in Davos today, Kamal Nath said India's path to recovery will be faster than for the rest of the world.

Speaking at the forum, planning commission deputy chairman Monteksingh Ahluwalia said the country should be able to maintain economic growth of around 6.5-7 per cent in the next fiscal (2009-10), but needs to ramp up infrastructure spending to boost growth.

Global manufacturers can lessen their pain arising out of recession in major markets by setting up production facilities in India, which still offers a competitive environment, Kamal Nath said, adding, "The financial situation has eased somewhat and liquidity is accessible in the domestic market.''

''For example, after industrial downturn in October 2008, the November 2008 figure was positive at 2.4 per cent. The financial situation has eased somewhat and liquidity is accessible in the domestic markets. I would like to point out here that India is still a low-cost high quality competitive manufacturing environment, and with falling shipping rates, it may be more cost effective to set up production facilities in India'', he added.

''FDI inflow has maintained its pace – with inflow of $ 19.7 billion during the period April – November 2008. Even during the financial crisis was playing out, an inflow of more than $1 billion took place in November 2008'', Nath said.

During the interactive session, Kamal Nath pointed out that India has seen rapid economic growth averaging 8.8 per cent for the past five years; savings and investments as a proportion of GDP have gone up to 36 per cent and 38 per cent, respectively; share of service sector in the economy has increased to around 60 per cent; trade as a percentage of GDP is in excess of 40 per cent. These reflect India's increased integration with the world, he said, adding, India that has gradually integrated with the global economy has not escaped unscathed from the global economic turmoil.

''We have a dynamic young population with a large and growing middle class consumers of 300-400 million. Agricultural growth has been robust, maintaining the incomes of 65 per cent of the workforce that is dependent on the sector for livelihood'', the minister said.

Underlining the measures taken by the government to mitigate the effects of global economic crisis, Kamal Nath said the Reserve Bank has reduced key rates to increase the flow of credit to productive sectors of the economy. It also instituted a term repo facility for an amount of $12 billion to ease liquidity stress faced by mutual funds and non-banking financial companies.

The RBI measures have helped inject close to Rs4,00,000 crore since mid-September and improve liquidity in the system, he pointed out.

Excise rates have been slashed across the board. External borrowing limits have been raised and FII limits for corporate bonds have doubled. Tax-free infrastructure bonds have been announced to increase funds available for the sector. Fiscal measures worth $ 5 billion have been announced.

He said India would recover faster than the rest of the world from the global downturn. For example, after the industrial decline in October 2008, the November 2008 figure was positive at 2.4 percent, Nath said, adding India's economic growth would be in the range of 7 to 8 percent in the current fiscal ending March 2009.

The country's GDP growth was "fairly robust" at 7.8 percent in the first half of the fiscal. Nath said the government and the Reserve Bank of India have announced fiscal measures involving $5 billion to mitigate the effects of the global economic crisis on the country's economy.