Rupees Slips to Record Low Against Dollar as Economy Slows Down
It was supped to happen!
When economies around the world were either in recession or contraction, Indian government has been projecting a GDP growth of more than 7% for the fiscal of 2008-09 which many economists and analysts termed as over optimistic. With falling demands in major markets around the world, the only way to keep a high growth rate is to create more demands in the domestic market and Indian government has been trying it through three-staged stimulus package by reducing interest rates and releasing huge flow of funds in the market.
It seems the packages were not timed well as third quarter (ending on 31st December from 1st October) GDP growth fell to 5.30% - thus falling below 6% for the first time since 2003. What is more worrying is the fact that farm sector contracted up to 2.20% and manufacturing sector fell 0.2% from the level during same time last year.
As a result of this, stock market fell by 0.7% during the day and Indian Rupees breached the record Rs. 51 barrier against the Greenback amidst sustained pressure for the dollar by foreign banks and oil importers.
With the announcement of this economic performance, eperts are having varied opinions. Some economist like Sherman Chan of Moodys believe that the governments projection of over 7% growth is over optimistic and it is high time the projection is revised. On the other hand, Pawan Kumar Bansal, the junior Finance Minister says the government still expects GDP to grow at over 7% during current fiscal. This group is of the opnion that the stimulus measures are yet to have major effects and the economy will recover during the 4th Quarter.
whatever happens, Industry is of the opnion of more rate cuts by the Central Bank as they need more liquidity in the market to take full advantage of stimulus packages announced by the government recently. This has necessitated more with this announcement of poor performance by the economy. Most believe that, if the economic growth slips below 6%, there will be huge job losses and India need to maintain a GDP growth rate of 8-9% in order to dent against the huge percentage of its people living below poverty line.