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India can sustain 9% growth for third year: minister

(NEW DELHI) India’s 9 per cent economic growth may be sustained for a record third year on prospects of bumper crops and a retreat in crude oil prices, Finance Minister Palaniappan Chidambaram said.

‘If harvests are good, we are able to enjoy a bit of luck with crude oil, and we are able to moderate capital flows, which are putting pressure on inflation, we should have 9 per cent,’ the Harvard-educated minister said in an interview.

Asia’s third-largest economy grew last quarter at the slowest pace this year amid decade-high borrowing costs. JPMorgan Chase and HSBC Group expect more than three years of interest-rate increases by the central bank to moderate India’s expansion further.

‘The combination of monetary tightening and a higher value of the rupee in the foreign-exchange market can put the brakes on the economy in the near term,’ said Stephen Roach, chairman of Morgan Stanley in Asia. ‘I am very optimistic about India over the next three to five years.’ Mr Roach says the economic slowdown will be temporary, and India’s adoption of China-like policies on foreign investment and infrastructure development makes growth of as much as 9 per cent ’eminently achievable.’

India’s US$906 billion economy grew 8.9 per cent last quarter from a year ago. China’s US$2.6 trillion economy expanded 11.5 per cent. That kind of pace is more than three times the rate of growth in the US and countries sharing the euro.

Industry Minister Kamal Nath last month said almost all of India’s economy is now open to overseas investment since Prime Minister Manmohan Singh, as the finance minister in 1991 started to dismantle India’s Soviet-style controls on industry. Only some defence-related areas and retail remain closed, Mr Nath said.

Since assuming office in May 2004, Mr Singh’s government has relaxed foreign investments in telecommunications and single-brand retail outlets. The government will this week consider easing foreign investment rules in aircraft maintenance companies, petroleum-marketing firms and commodity exchanges, the Economic Times reported.

To attract more funds from abroad, India last year enacted a law to enable construction of special economic zones, enclaves modelled on China’s Shenzhen. The government also has a five-year plan to attract investments of US$500 billion in roads, ports and other infrastructure.

Mr Chidambaram said that while investment will continue to drive India’s economic growth, ‘there are some risks, such as crude oil prices, over which we have no control.’

India is Asia’s third-biggest oil consumer and imports almost three-quarters of its needs.

 

Source: Bloomberg (Business Times 4 Dec 07)

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