India to face tougher challenge in 2009-10: Subbarao

India will have to face tougher challenge in the next fiscal year (2009-10), as the growth rate of India will moderate sharper in comparison to 2008-09, said Reserve Bank of India governor Duvvuri Subbarao on Thursday in New Delhi.

Speaking at the annual session of Confederation of Indian Industries (CII), Subbarao said that last year was better with two good quarters, out of the impact of the global crisis. But this year would be more challenging as the growth moderation might be steeper than we had earlier thought.

‘The delay of fresh corporate investments is making it more challenging,’ he added.

On the other hand, he expressed hope that India would recover this loss swiftly and sharply on the back savings and productivity, as India’s growth fundamentals are intact and local banks are sound and well capitalized.

However, he did not forecast the project growth rate of India for the next fiscal nor did he sketch any timeline for recovery of growth.

The governor said that India’s economy was much closer to the global economy as against our expectation that had hurt it more. “India is much more integrated with the world than we tend to believe,” he said.

‘The challenge for India is not to control the financial sector unlike US but to arrest the moderation in growth; and we will take all necessary actions,’ he said.

The RBI governor ruled out the chances of another stimulus package to revive the economic growth as he advised that we should wait for the positive impact of previous two relief packages first. ‘The third stimulus package would put additional pressure on the economic infrastructure,’ he added.

To revive several struggling sectors, the government had provided a potential liquidity of Rs 3,90,000 crore through two fiscal packages; first in December and second in January while announcing several cut in duties and taxes during interim budget in February.

“We had provided liquidity through various channels but all were not used,” he said

Speaking on Banks’ reluctance to cut interest and deposit rates despite making several announcement by RBI to cut of rate in repo rate, Cash Reserve Ratio (CRR), Benchmark Prime Lending Rate (BPLR) and Reverse Repo Rate, Subbaro said, “We are talking with banks to understand what their perception is?”

With falling of inflation rate to 0.26%, as per the latest inflation data, RBI indicated that there was still enough room for further cuts, while the Indian Bankers Association (IBA) said that it would not aid more.