Zeenews Bureau
New Delhi, Nov 18: Finance Minister P Chidambaram on Tuesday expressed hope that the ongoing financial crisis will come to an end soon. He further said that India, which is experiencing the spillover effect of the global meltdown, will bounce back next year.
Speaking at the India Economic Summit in New Delhi, Chidambaram said that it is not the first time that industrial economies have gone into a recession, but added that the current crisis threatens to be stronger.
“We are not the cause of the problem but we want to be part of the solution,” the Finance Minister said, adding, “there is a crisis and it will end some day”.
He further listed “confidence, courage and taking the steps that are necessary” as vital to tide over the current financial crisis.
Noting that the agriculture sector continues to grow at a robust pace, Chidambaram said that the government was expecting a bumper crop this year.
Acknowledging that manufacturing, financial and services sectors were facing liquidity crunch, the minister assured that the government will ensure availability of cash at adequate price.
Assuring one and all about the health of the Indian economy, Chidambaram said that the country will register a GDP growth rate of at least 7% going by the lowest estimates of global think-tanks.
Noting that the world economy was expected to only grow by 2%, Chidambaram said that India’s growth rate would still be three times more than that of the world.
“I am confident that we will end the year with a satisfactory growth rate,” he said, adding that the government will take steps to stimulate the economy.
On the trade front, Chidambaram acknowledged that exports were expected to dip and may not touch the USD 200 billion target. So there’s a need to raise local demand to offset a slowdown in exports, he added.
Cut prices, not production
Further, Chidambaram asked the Indian industry to cut prices and maintain production levels in a bid to address demand slowdown.
"The classic response to demand slowdown is to cut prices for the short-term," the Finance Minister said on the concluding day of the Davos-based World Economic Forum's India Economic Summit that began here on Sunday.
He said this was the only way India Inc could maintain its financial health, keep the inventories down, continue to enjoy the hard-won market share and retain the loyal and hardworking employees.
Giving an example, the minister said when people buy cars, they know that its value would depreciate. But when they buy a house or an apartment, they want the value to appreciate. “Unfortunately, that assurance is not there,” he said.
"While banks are ready and willing to lend, the borrowers are not ready to buy at current prices," he said, calling for a cut in the cost of homes, cars, two-wheelers and other consumer products.
He said thanks to pragmatic policies of the government led by Prime Minister Manmohan Singh and the nine percent growth rate, India Inc was used to a 30 percent or higher rise in its profit after tax. When this growth falls to 10-12 percent, it is concerned.
“All I ask is, there are enough people to spread gloom and doom. Just have your chin up, and in six-nine months, or maybe 12, we will be back to normal growth rates that we are used to,” he said.
According to the Finance Minister, when inflation was rising and the government was addressing the issue, critics said it was ignoring growth. Now when price rise has moderated, they say we are focused on growth and ignoring inflation.
“That's the luxury of sitting on the other side of the aisle,” he said, adding: “We will continue to balance growth and inflation.”
He also said that while the average excise duties had been cut from 16 percent to 14 percent, he was willing to consider more. "I am open to examining any suggestion," he said.
‘G20 most important financial body’
Chidambaram also said that the G20 group of developed and emerging nations has replaced the G7 club of rich industrialised countries as the world's most important body to tackle economic problems.
"The G20 has come to stay as the single most important forum to address the single most important issues of the world," he said.
"The G7 has belatedly recognised that unless they engage with emerging economies there can be no solution to world problems," Chidambaram told the summit.
India has long argued that it and other large emerging economies should have a greater voice in global financial decision-making.
Chidambaram's remarks came after neighbouring China said at the weekend that the meeting of 20 major economies was helpful in tackling the global financial upheaval, and urged more co-operation to prevent a global recession.
The G20 leaders, including Prime Minister Manmohan Singh, agreed on Saturday on an action plan meant to restore global growth and prevent future financial upheaval, while also promising new spending plans, a trade deal and a set of reforms.
(With IANS inputs)