India cuts interest rates to boost economic growth
Mumbai (AsiaNews/Agencies) - For the first time since 2009, the Reserve Bank of India (RBI), India's central bank, cut interest rates by 50 basis points with the repurchase rate dropping to 8 per cent from 8.5 per cent. The RBI's goal is to boost the economy, which grew by 6.9 per cent in fiscal year 2011-2012, the weakest in the past three years. Few analysts and experts had expected the move with most predicting a 0.25 percentage-point cut.
RBI Governor Duvvuri Subbarao warned, there may no room for any further cuts because of high inflation.
Gross domestic product may expand 7.3 percent in the year through March 2013, better than last year's baseline projection, the central bank said. However, this might be of little consolation since inflation in India is the highest among the BRICS nations (Brazil, Russia, India, China and South Africa), and remains one of the country's most serious problems.
The RBI itself played an important role in the economic slowdown. In order to fight rising prices, it raised rates 13 times between March 2010 and October 2011.
"The RBI is faced with a very difficult situation as growth is slowing and inflation remains high," said Rupa Rege Nitsure, an economist at Bank of Baroda in Mumbai.
India needs "efforts from the government's side to boost the capacity of the economy by accelerating reforms," Nitsure explained.
However, reforms have been profitable mostly to the manufacturing sector and big firms. They employ 14 per cent of the workforce and have profited from government liberalisations in the past 15 years.
The same policies have been detrimental to craftspeople, small-scale entrepreneurs and farmers, pushed to the sidelines by the boom even though they employ 90 per cent of the labour force.
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