India- Room for Monetary Policy Easing

India’s government said the country has room to cut interest rates further and pump more money into the economy to sustain growth after the global recession caused industrial output to shrink for the first time in 15 years. “An aggressive monetary policy may be necessary if the global economic depression continues to adversely affect manufacturing,” the finance ministry said in its mid-year review of the economy presented in parliament today. India also needs to increase spending on infrastructure to offset declining private investment, the ministry said. Prime Minister Manmohan Singh, seeking re-election before May next year, wants to sustain consumption as a decline in exports forces companies to cut production and fire workers. The government on Dec. 7 announced a 200 billion-rupee ($4-billion) stimulus package to prop up consumer spending, a day after the central bank cut interest rates for the third time in two months. “The only strong solution to spur consumer spending lies in lowering borrowing costs,” said Dharmakirti Joshi, an economist at Mumbai-based Crisil Ltd., the local unit of Standard & Poor’s. “The decline in inflation gives the central bank enough legroom to ease the policy.”