The Hindu Business Line : ‘India can withstand impact of US rate cut’

New Delhi, Jan. 17 The Union Finance Minister, Mr P. Chidambaram, today said that interest rates cut in the US would affect India but the India’s high exports to other countries, including China and Japan, would insulate it from any crisis.

Though a drastic cut in interest rates by the US to avert a recession will affect India, the Government would take steps to counter such an impact, Mr Chidambaram said at the CII Partnership Summit here today.

Commenting on the impact of a US recession on India, the Minister said that although India enjoys a trade surplus with the US, which also happens to be its largest trading partner, India has “equally large exports to Europe, to eastern countries like China and Japan. Therefore, I don’t think that a slight slowdown in US economy will immediately or drastically affect India’s growth prospects,” he said.

India’s exports to the US at $15.6 billion against an import of $6.1 billion last year gave it a huge trade surplus over the world’s biggest economy.

“If the US goes through recession, there will be global consequences and India will also have to bear a part of the consequences. I hope the US Government will also take measures to stimulate growth and we will also respond by taking necessary steps,” Mr Chidambaram said.

“However, if the US, as a response to the slowdown, cuts interest rates very drastically, that will widen the difference between the US interest rate and Indian interest rate and that has consequences like capital flow and faster appreciation of the rupee,” he pointed out.

The Minister also reiterated the Government goal of wiping out revenue deficits by 2008-09 and to bring down fiscal deficit to three per cent of the GDP.

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