March 22 (Bloomberg) -- India’s central bank has “more room” to cut interest rates further to combat economic slowdown and a global recession, according to Montek Singh Ahluwalia, deputy chairman of the nation’s Planning Commission.

“Fortunately, we have more room for further relaxation unlike some of the industrialized countries where the scope for monetary easing has been pretty much exhausted,” Ahluwalia said yesterday via videolink from New Delhi to a conference in Philadelphia sponsored by the University of Pennsylvania’s Wharton business school.

India’s central bank earlier this month cut interest rates for the fifth time since October after growth slowed to a five- year low. Governor Duvvuri Subbarao is driving policy rates to unprecedented lows to revive investment and spur consumption in Asia’s third-largest economy.

Parliamentary elections scheduled for April and May complicate efforts to boost the economy because the government is banned from announcing new fiscal policies or stimulus steps until the voting is finished. Prime Minister Manmohan Singh’s government has backed the monetary stimulus by lowering taxes and increasing spending on infrastructure.

“The new government when it comes into place probably in early June will almost certainly continue the fiscal stimulus policies we have followed,” said Ahluwalia. “We will use the opportunity, the scope that is available for monetary policies, to support these fiscal policies.”

Slower Growth

India’s economy probably will grow less than 7 percent in the financial year ending March 31, Ahluwalia said.

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 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 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.

To contact the reporters on this story: Shobhana Chandra in Philadelphia via Washington at 1888 or schandra1@bloomberg.net; Subramaniam Sharma in New Delhi at ssharma@bloomberg.net

Last Updated: March 22, 2009 02:09 EDT