NEW DELHI: Worried over the fallout of the United States’ downgrade on Indian economy, the Finance Minster, Mr Pranab Mukherjee Thursday
said he could make a statement on the issue in the current session of the Parliament.
Stressing that there was no need to press the panic button, the Minister, however, said the downgrade of sovereign ratings could have an impact on the domestic IT industry. “Downgrade of US creditworthiness may impact Indian IT industry,” he said.
“…I am worried (but) there is no need to press the panic button. If required, I would like to make a statement (in the current session),” Mr Mukherjee said while winding up the debate on the first batch of supplementary demands for grants in the Rajya Sabha.
The downgrade of the US sovereign rating to AA+ from AAA by Standard and Poor’s aggravated the global financial problems being faced by American and the Eurozone countries. India too witnessed a steep fall in the stock market, following the downgrade.
On the impact of downgrade on the IT industry, Mr Mukherjee said, “No doubt our IT industry may be affected. India’s IT sector depends heavily on export to the US. The government will take time to study the full impact of the US downgrade on domestic industry.” He further said that the recent development could also have implications for exports growing at an impressive pace and recorded a growth of over 81 per cent in July.
With inflation close to the double digit mark, Mr Mukherjee Thursday said that the ideal rate of price rise would be 3-4 per cent. “It would have been ideal if we could have kept it (inflation) at three, three-and-half or four per cent,” he said. Under the present scenario, even 5-6 per cent could be acceptable, Mr Mukherjee said, adding “there is no correlation between growth and inflation, at least to the extent it is being projected (by the Opposition).”
While the overall inflation was 9.44 per cent in June, food inflation soared to 9.90 per cent for the week ended July 30. Disputing the contention that there was always a co-relation between growth and inflation, Mr Mukherjee said that inflation was high in 1974, 1980 and 1991 but not the growth. “Those were the regimes of slow growth,” he added.
Describing inflation as an economic phenomenon, Mr Mukherjee said, it was on account of “distortion between demand and supply” and it would take some time for the government to address the problem. He further said that food inflation and fuel inflation are global phenomena and India is not an exception. “Please show me the path, I will accept it,” he said, pointing out that India had to import more than 75 per cent of its oil requirements. The oil prices are ruling at about US$ 107 a barrel in the international market.
On fund flows from Financial Institutional Investors (FIIs) into India, Mr Mukherjee said, “Caution is needed. Therefore, we shall have to keep in mind volatile nature of the flow of FII.” “We will not allow ourselves to be exposed and vulnerable,” he added. On the economic growth projections made by the Prime Minister’s economic panel, PMEAC, (8.2 per cent) and Planning Commission (8.6 per cent), Mr Mukherjee said, “But when Europe’s growth, America’s growth is not even two or two-and-a-half per cent, in that context, 8 per cent is not that bad. It may not be good; but it is not that bad.” In February, the government had projected the GDP growth between 8.75 and 9.25 per cent.