HYDERABAD: Though the government is playing down the likely impact of the global financial crisis on India, the impact is likely to be greater than the expected, Reserve Bank of India governor Duvvuri Subbarao indicated. "The global (financial) crisis is turning out to be deeper and longer than we had earlier expected, the impact on India is also turning out to be stronger than we had earlier expected," Subbarao said on Thursday.

"Since the impact on India is from the global financial crisis and because the crisis is still uncertain and unsettled, it will be difficult to precisely estimate the duration of the impact. But one thing I do want to say that when there an upswing, common confidence are restored to the market and when the world economies start recovering, India will be the first to recover. We will be the fastest to recover," he said.

He was in Hyderabad to attend a closed-door seminar on Mitigating Spillovers and
Contagion - Lessons from the Global Financial Crisis, being jointly organised by the RBI and the Bank for International Settlements (BIS).

While there has been a consensus on the slowdown and the industry too believes that the slowdown is here to stay for a while, the duration in the Indian market has become a tricky question.

Rao too said that the duration would be difficult to ascertain. There has also been a criticism that the banking sector failed to respond to the regulators moves to ease the credit crunch and lower the interest rates. Subbarao, however, said that the RBI would only signal the banks on the future course of action. "The RBI, as a regulator, does not issue mandates to banks on their rates. However, we signal policy rates and we expect the banks to take signals from there. I am in constant touch with banks. We held meeting with large banks last week and had frank and useful exchange of views," he said.

On the measures that have been initiated by the RBI, Subbarao said the intent of the RBI was three-fold - to maintain a comfortable rupee liquidity position, to maintain a comfortable foreign exchange liquidity position and to ensure that credit continues to flow to productive sectors.

"We are monitoring the situation closely and continuously and we will take appropriate action at the appropriate time. I can not at this point in time tell you what we will do," he added. Inflation is all set to slip further down as it has been for the last three weeks and growth has now moderated, he said.

"We will be doing our inflation numbers for policy which will be due in January. But I note that inflation has come down in three weeks in a row, driven by a decline in commodity prices although domestic demand moderation also contributed to that. It looks like there is going to be further decline in inflation going forward," he said.

k_ramana@dnaindia.net
Source : DNA