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Wednesday, November 26, 2008

India Must Back Growth as Inflation Slows

India must support flagging economic growth as inflation slows, said Bimal Jalan, former governor of the Reserve Bank of India.

``At the moment, our problem is to restore the confidence and the growth,'' he said in New Delhi today. ``This year, our task is to make sure that India is on a stable growth path.''

Jalan, who is also a member of the upper house of parliament, said the slowdown in inflation and the decline in oil prices allow policy makers space to maneuver.

``It is a great blessing for us that our banks are safe, oil prices have come down and inflation has come down,'' the former governor said. ``It gives us plenty of room to do whatever we need to do.''

Finance Minister Palaniappan Chidambaram has said economic growth this year will slow to 7.5 percent before bouncing back to 9 percent next year. The government and the central bank have loosened fiscal and monetary policy to unlock a credit freeze and try to shore up growth amid a global recession.

``There is a credit vacuum arising from the drying up of sources other than banks,'' Jalan said. ``Banks are doing their best, the Reserve Bank is doing its best, the government is doing its best. The question is: Who can fill it up?''

Last year, bank credit was only one-third of total credit to companies, Jalan said.

India's inflation unexpectedly slowed to a five-month low of 8.9 percent in the week to Nov. 8 from a year earlier after gaining 8.98 percent in the previous week, the commerce ministry said on Nov. 20. The inflation rate has dropped from a 16-year high of 12.91 percent in the week to Aug. 2.

Montek Singh Ahluwalia, deputy chairman of the Planning Commission, said today that India will maintain its 9 percent growth target in the ``medium term'' even as economic expansion may slow this year.

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