India’s Ahluwalia Says Economy May Grow Less Than 7% (Update1)

India’s economy probably will grow less than 7 percent in the fiscal year ending March 31, said Montek Singh Ahluwalia, deputy chairman of the nation’s Planning Commission.

Recent economic data show “a more serious slowdown” than the government had expected, he said today via videolink from New Delhi to a conference in Philadelphia sponsored by the University of Pennsylvania’s Wharton business school.

The International Monetary Fund said this past week that India’s economy will weaken more than government forecasts as the global recession reduces corporate investment. Indian banks are reluctant to extend loans in a slowing economy for fear of piling up bad debts, even after the central bank has cut its key repurchase rate to an all-time low of 5 percent.

Growth this year may be “less than 7 percent,” while the government had expected it would be about 7.1 percent, Ahluwalia said. That’s “certainly not a bad growth rate,” given the global recession, he said. The global financial crisis has “had an impact on the real economy” through India’s trade and investment links with the rest of the world, he said.

Ahluwalia said he expects the government that emerges from the nation’s coming parliamentary elections will continue the fiscal stimulus policies of the current administration and that growth over the current fiscal year and the next may average 6.5 percent. He didn’t make a specific forecast for the coming fiscal year.

IMF Forecast

The IMF said March 17 that India’s growth will be at 6.3 percent this fiscal year and will slow to 5.3 percent in the year starting April 1.

The country is experiencing “some withdrawal” of foreign private capital, though that will return once the global economy recovers and if the new government keeps policies in place, Ahluwalia said.

“There will be some loss of growth,” he said. Still, India is “well positioned” and the government’s stimulus efforts is aimed at investing in areas such as infrastructure to correct the “neglect of the past.”

India’s financial sector is in “pretty strong shape,” Ahluwalia also said.

India and China offer “spectacular opportunities” for investors, said investor Jim Rogers, chairman of Singapore-based Rogers Holdings and the author of books including “Hot Commodities,” “Investment Biker” and “Adventure Capitalist.”

India’s politicians are one of the “major problems,” Rogers told the Wharton India Economic Forum via videolink from Singapore. The country has the “single worst bureaucracy in the world.” If a person can deal with that, “there are fortunes” to be made by investing in India, Rogers said.