Govt has limited options to combat economic slowdown: Mukherjee

Worried over the unfavorable global economic environment, declining rupee and weak economic growth, Finance Minister Pranab Mukherjee said, the government has limited options to combat the slowdown. He noted that major economies worldwide, particularly those in Europe, have not yet emerged from the slowdown in late 2008 despite the aggressive use of fiscal and monetary tools.

'All these (slowdown) have happened despite the aggressive use of both fiscal and monetary policy tools... it poses serious problem for policymakers. Going forward, it limits our options in dealing with the emerging situation,' Mukherjee said.

In the second quarter of 2011-12, India’s Gross Domestic Product declined to 6.9% as compared to 8.4% in the same period of 2010-11. As a result, India’s economic growth in the first half of the 2011-12 stood at 7.3% compared to 8.85% in the same period of corresponding year. In the backdrop of the ongoing uncertainty in global economy, accompanied with domestic factors, the government slashed India’s GDP forecast for the current fiscal to 7.5% (+/- 0.25%) from earlier estimate of around 9%.

During the 2008 economic crisis, the government, like other countries, had rolled out a stimulus package of about Rs 1.86 lakh crore or 3% of the India’s GDP, to provide a cushion to the domestic industry against external shocks.

On the depreciation of rupee against American dollar, finance minster said in the wake of the global crisis of 2008, India received excessive capital inflows, leading to appreciation of the domestic currency. However, with the unfolding euro zone crisis, a matter of concern at present, it has reversed such (capital inflows) growth, leading to increased currency volatility... We have witnessed sharp depreciation of the rupee vis-a-vis the dollar in the last few months,' he added.

Indian rupee declined to a record low against dollar for third successive day. It touched its all time low of Rs 53.74 per dollar, taking the losses to more than 18% from its year-high in July. Sustained dollar demand from banks and importers and foreign capital outflows continued to put pressure on the rupee.

On the high inflation, Mukherjee said it has been a major policy concern for the last few years'. However, he expressed satisfaction that food inflation has started moderating. Food inflation declined to 6.6% for the week ended November 26, whereas it stood at 12.21% for the week ended October 22. On the other hand, headline inflation for the month of November plunged to 9.11%, its lowest level in last 12 months, compared to 9.73% in October 2011. The government further, revised its inflation data for the month of September, which stood at 10% compared to provisional figure of 9.72%.

On the exports, Mukherjee said a slowdown in external demand has led to a deceleration in India's exports growth, resulting in widening of the Current Account Deficit to about 3% of the GDP. Mukherjee's statement comes just days before the RBI is scheduled to review the monetary policy. The RBI’s mid-quarter review of monetary policy for 2011-12 is scheduled on December 16.