India front-loads borrowing to boost economy
India said Thursday it would borrow nearly 50 billion dollars in the first half of the coming fiscal year -- two-thirds of its total borrowing plan -- to spur the economy, warning of tough times ahead. The government announced the decision to front-load borrowing in the first half of the financial year ending March 2010 to pump more stimulus into an economy growing at its weakest pace in six years. The move came after a meeting with central bank officials in the Indian capital, New Delhi. "Growth moderation might be steeper (in the coming financial year) than we had thought earlier. I believe 2009-10 is going to be a more challenging year than 2008-09," Reserve Bank Governor Duvvuri Subbarao said. "The challenge in India is to arrest the moderation in growth," he said. But once the global economic crisis is over, India's economic growth will be "steeper and swifter" than in the rest of the world, he said. The plan to sell bonds worth 2.41 trillion rupees (47.4 billion dollars) in the first half is part of a record 3.6 trillion rupees of borrowing set for 2009-10, Economic Affairs Secretary Ashok Chawla said. One trillion rupees to be borrowed would be to repay existing debt. "If you want to inject stimulus into the economy, it makes sense to front-load it and do it in the first half of the year," Dharma Kirti Joshi, principal economist at Crisil ratings agency, told AFP. The government has already warned its fiscal deficit for the current financial year will be 6.0 percent of gross domestic product -- more than double a target of 2.5 percent, saying "extraordinary economic circumstances merit extraordinary measures." The borrowing announcement coincided with data showing India's inflation edging closer to zero, which raised expectations of more interest rate cuts to jolt the economy out of a looming deflationary patch. Annual inflation fell to 0.27 percent for the week ended March 14 from 0.44 percent the previous week, according to the Wholesale Price Index. The index is India's most-watched cost-of-living measure because of its wide basket of goods and the frequency of its calculation. Wholesale inflation has tumbled from a 13-year high of 12.91 percent last August due to a slump in oil and other global commodity prices as well as the effects of the worldwide slowdown. But the government ruled out the possibility of broad-based deflation. "I don't think India is in danger of deflation," said Prime Minister Manmohan Singh, whose Congress-led government faces elections due to kick off in April. Analysts agree with the government's assessment, saying while the Wholesale Price Index was likely to turn negative within weeks, India should not experience a deflationary spiral because consumer prices remain high. "Talk of deflation in India when consumer price inflation" is still so high "is misplaced," said Rajeev Malik, securities analyst at Macquarie Securities. Consumer price inflation is running at 10.4 percent, according to the most recent January figures, but is expected to fall to around four to five percent, economists say. However, India's central bank uses the Wholesale Price Index to set monetary policy and analysts said more rate cuts were likely to boost the economy. The economy is seen growing this year at close to seven percent and next year by 5.5 percent or lower after three years of minimum nine percent growth. "This (inflation drop) paves the way for lower interest rates," Deepak Lalwani, India director at London-based brokerage Astaire and Partners, said. The central bank has slashed its key short-term lending rate to commercial banks by 400 basis points since October to a record low of five percent as it tries to kick-start loan activity and consumer demand.
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India said Thursday it would borrow nearly 50 billion dollars in the first half of the coming fiscal year -- two-thirds of its total borrowing plan -- to spur the economy, warning of tough times ahead. The government announced the decision to front-load borrowing in the first half of the financial year ending March 2010 to pump more stimulus into an economy growing at its weakest pace in six years. The move came after a meeting with central bank officials in the Indian capital, New Delhi. "Growth moderation might be steeper (in the coming financial year) than we had thought earlier. I believe 2009-10 is going to be a more challenging year than 2008-09," Reserve Bank Governor Duvvuri Subbarao said. "The challenge in India is to arrest the moderation in growth," he said. But once the global economic crisis is over, India's economic growth will be "steeper and swifter" than in the rest of the world, he said. The plan to sell bonds worth 2.41 trillion rupees (47.4 billion dollars) in the first half is part of a record 3.6 trillion rupees of borrowing set for 2009-10, Economic Affairs Secretary Ashok Chawla said. One trillion rupees to be borrowed would be to repay existing debt. "If you want to inject stimulus into the economy, it makes sense to front-load it and do it in the first half of the year," Dharma Kirti Joshi, principal economist at Crisil ratings agency, told AFP. The government has already warned its fiscal deficit for the current financial year will be 6.0 percent of gross domestic product -- more than double a target of 2.5 percent, saying "extraordinary economic circumstances merit extraordinary measures." The borrowing announcement coincided with data showing India's inflation edging closer to zero, which raised expectations of more interest rate cuts to jolt the economy out of a looming deflationary patch. Annual inflation fell to 0.27 percent for the week ended March 14 from 0.44 percent the previous week, according to the Wholesale Price Index. The index is India's most-watched cost-of-living measure because of its wide basket of goods and the frequency of its calculation. Wholesale inflation has tumbled from a 13-year high of 12.91 percent last August due to a slump in oil and other global commodity prices as well as the effects of the worldwide slowdown. But the government ruled out the possibility of broad-based deflation. "I don't think India is in danger of deflation," said Prime Minister Manmohan Singh, whose Congress-led government faces elections due to kick off in April. Analysts agree with the government's assessment, saying while the Wholesale Price Index was likely to turn negative within weeks, India should not experience a deflationary spiral because consumer prices remain high. "Talk of deflation in India when consumer price inflation" is still so high "is misplaced," said Rajeev Malik, securities analyst at Macquarie Securities. Consumer price inflation is running at 10.4 percent, according to the most recent January figures, but is expected to fall to around four to five percent, economists say. However, India's central bank uses the Wholesale Price Index to set monetary policy and analysts said more rate cuts were likely to boost the economy. The economy is seen growing this year at close to seven percent and next year by 5.5 percent or lower after three years of minimum nine percent growth. "This (inflation drop) paves the way for lower interest rates," Deepak Lalwani, India director at London-based brokerage Astaire and Partners, said. The central bank has slashed its key short-term lending rate to commercial banks by 400 basis points since October to a record low of five percent as it tries to kick-start loan activity and consumer demand.
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