India's Central bank has cut interest rates in a bid to halt a slump in the economy. The move comes after economic growth slipped to its lowest rate of increase in six years.
The Indian Central Bank says the impact of the global economic downturn on India has been deeper and wider than anticipated. That has prompted the bank to cut key interest rates by half a percentage point.
This is the fifth time in as many months that the central bank has lowered interest rates, in a bid to boost consumer demand and stimulate the economy.
The latest interest rate cut came days after economic growth slipped to 5.3 percent from October to December. It marks the slowest growth since 2003, when the country's economy catapulted to a high-growth path, making it the world's second fastest-growing economy.
Economic Affairs Secretary Ashok Chawla says the central bank may cut interest rates even further.
"As the situation unfolds and requirement emerges, the reserve bank will take this steps and we are sure this will provide the impetus to the banks to lower their lending rates," Chawla said.
The bad news is piling up everywhere. Exports have shrunk in the last four months. Industrial production has slumped. Flow of foreign capital has dried up, as investors shun emerging markets. And, the country's benchmark stock index, the Sensex, is down 15 percent since the start of the year. Consumer demand for homes and cars has slowed, hurting key sectors. The local currency, the rupee, has plunged against the dollar by more than 20 percent since last year.
Even more worrying is the decline in the agriculture sector, where growth has slipped to a mere two percent. Agriculture employs nearly two-thirds of the country's billion-plus population.
Unlike several other Asian countries, India is not facing a recession. But economists say a dip in growth threatens the country's ability to fight poverty, which is widespread despite five years of good growth.
The government says, even amid the global downturn, it hopes to sustain seven percent growth. However, many economists call that an optimistic projection which may have to be revised downwards.