Kamal Nath says stimulating domestic demand is top priority

19 Feb 2009 | 18:04 Kamal Nath says stimulating domestic demand is top priority

Trade Minister Kamal Nath on Thursday, 19 February 209, said the government's top priority is to stimulate domestic demand. However, share prices tumbled earlier this week as an interim budget for 2009-2010 announced on 16 February 2009 did not provide an anticipated stimulus for the economy.

The Central Statistical Organisation (CSO) has pegged India's projected GDP growth for the year ending March 2009 at 7.1%, the slowest in six years and below the previous year's 9%.

The government has so far announced two stimulus packages including tax cuts and the capital injections for banks

Nath said the the Reserve Bank of India (RBI) is watching the monetary situation and may respond as and when needed.

Falling inflation has provided room for the Reserve Bank of India (RBI) to cut interest rates further to shield the domestic economy from the global financial sector crisis and recession in key global economies. RBI governor D Subbarao said on Wednesday, 18 February 2009, there is room for cutting interest rates further as the impact of the global recession on India was sharper than expected. But the question is whether rates should be cut, he said. The RBI governor was unsure about the timing and extent of the rate cut, if any.

Inflation based on the wholesale price index rose 3.92% in the year through 7 February 2009, much lower than previous week's annual rise of 4.39%, data released by the government today, 19 February 2009, showed. It was the index's lowest annual rise since 3.83% on 29 December 2007.

Market men see a bigger role for RBI in the coming months to shield the domestic economy from the impact of the global financial crisis and recession in key global economies as the election code will be in force by the end of this month which means that there cannon be any policy action from the government. Once the model code of conduct comes into force after the announcement of poll dates, any announcement by the government will be subject to Election Commission's (EC) scrutiny.

The EC is likely to announce the poll date for the parliamentary elections by the end of this month. The elections are likely to be held in April-May 2009

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