Inflation below 4%, but Pranab warns of tougher times

Written by Economy Bureau | New Delhi | Updated: Feb 20 2009, 06:21am hrs
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Finance minister Pranab Mukherjee warned on Thursday that the full impact of the global slowdown is yet to be felt, though the UPA government had refrained from doing too many radical things in the interim Budget due to constitutional constraints. But he stressed that the government is willing to take more steps to spur the economy, broadly hinting at monetary measures like rate cuts.

I am laying emphasis on both fiscal corrections and monetary corrections. Unless these two are moved together and they move in harmony, it would be difficult to tackle the problem, he said, adding that simply pressing the panic button wont achieve anything.

If the economy demands certain things and if these could be done within (the constitutional constraints of an outgoing government), surely we would like to do them, he said. Markets already anticipate a cut in policy rates by RBI with inflation touching a 14-month low of 3.92% for the first week of February.

I will have consultations with the governor of the Reserve Bank. After that, I hope that while replying to the debate on the Budget (next week), I may be in a positionI am not making any assurance or commitmentto give more detailed information, Mukherjee said.

The ministers comments came a day after RBI governor D Subbarao said in Tokyo there is more room to reduce key rates. The question is whether we should cut rates, when we should cut rates and by how much we should cut rates, the governor said.

Warning of a sharper impact of the global slowdown on India than expected, he said the challenge for the government and RBI would be to minimise the pain. However, Subbarao dismissed suggestions to slow external liberalisation to protect Indian industry: We should not give a wrong signal right now. The supportI would not use the word protectionthat the Indian economy requires will be given.

The government has already announced two stimulus packages to spur economic growth, which is expected to moderate from 9% to 7.1% in 2008-09.