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Tuesday, 10 October, 2000, 14:25 GMT 15:25 UK
Slow growth forecast for India
Flooding in West Bengal
Flooding had an impact on both agriculture and industry
By Sanjeev Srivastava in Bombay

The Indian central bank - the Reserve Bank of India - has forecast slower than expected economic growth and left interest rates unchanged in its half-yearly annual monetary and credit policy statement.


It is not proposed to make any change in some of the important monetary measures, such as the bank rate, the cash reserve ratio or the liquidity adjustment facility.

Reserve Bank of India Governor Bimal Jalan
The slowdown is not only due to a sluggish industrial sector, but also because agricultural output has suffered from regional flooding and drought, according to Reserve Bank governor Bimal Jalan.

The statement has confirmed the fears of analysts who were predicting a slowdown in the Indian economy because of the spurt in global oil prices.

However, oil prices alone are not blamed for the economy not presenting a rosy picture.

Agriculture

Agricultural output suffered this year because of alternate bouts of flooding and drought in different parts of the country.

This has left the rural population - which comprises more than 65% of the population - with smaller than usual disposable income and is having an impact on the industrial sector as well.

Industrial production for the four months up to July was down to 5.4% his year from 5.9% last year.

Government borrowing

The bank also scaled down projections of GDP growth numbers by half a percent to between 6% to 6.5 %.

Bimal Jalan
Bimal Jalan: Critical of government borrowing
The bank was also critical of the slow pace of privatisation and government borrowing which resulted in a higher fiscal deficit.

The governor, Bimal Jalan, said a reduction in the government borrowing programme would be desirable in helping keep the interest rate outlook "positive and stable."

In an announcement like to give a fillip to the markets, the bank has allowed nationalised banks to invest a higher percentage of cash reserves in the equity markets.

However, the stock markets reacted to the gloomy forecast with a sharp fall and the Bombay stock exchange index fell by more than 2.5 % to close the day below the 4,000 mark for only the second time this year.

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See also:

19 Sep 00 | South Asia
IMF bullish on India
05 Jun 00 | South Asia
India going for growth
22 Oct 99 | South Asia
Analysis: Upping the pace of reform
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