By Cherian Thomas and Kartik Goyal Nov. 18 (Bloomberg) -- India's economy will ``bounce back'' to 9 percent growth next year as local demand holds up amid a global recession, Finance Minister Palaniappan Chidambaram said. ``There will be a slowdown in India and steps taken and those that will be taken, to a large extent, will compensate the factors causing the slowdown,'' Chidambaram told the World Economic Forum's India Economic Summit in New Delhi today. The Harvard-trained minister signaled interest rates will come down in Asia's third-largest economy and said he will examine further excise duty cuts to spur consumer spending. Record crop plantings by India's 400 million farmers will also boost rural incomes, Chidambaram said. India's economy may slow to 7.5 percent in the year ending March 31, after expanding 9 percent or more annually in the previous three years, according to the central bank. India's government wants to sustain growth rates above 9 percent to cut poverty in the world's most-populous country after China. ``India is still relatively insulated from what is happening in the rest of the world,'' said K.V. Kamath, the chief executive officer of ICICI Bank Ltd., India's second-biggest bank. ``We need a significant drop in interest rates to accelerate growth.'' The benchmark Sensitive index fell 2.2 percent to 9090.75 on the Bombay Stock Exchange in Mumbai, while the yield on 10-year government bonds dropped 1 basis point to 7.5 percent. The rupee declined as much as 0.9 percent to 49.80 per dollar, the lowest since Oct. 29, before trading at 49.70. Interest Rates Chidambaram said he was meeting this morning with central bank Governor Duvvuri Subbarao to discuss India's response to the global financial crisis. Subbarao has cut the Reserve Bank of India's benchmark repurchase rate by 1.5 percentage point to 7.5 percent in the past month, in addition to slashing lenders' reserve requirement in cash and bonds by 3.5 percentage points and 1 percentage points respectively. Kamath called for another 3 percentage point cut in interest rates. Subbarao has room to lower borrowing costs after the inflation rate dropped at the sharpest pace in at least 18 years this month. Inflation has slowed to 8.98 percent from a 16-year high of 12.91 percent in August. Chidambaram said it will be ``good'' if interest rates decline, adding that the ``classic solution'' to a demand slowdown is to reduce prices and he urged airlines, hotels and other companies to do so for a ``short period of time.'' ``The problems that India faces are not insurmountable,'' the minister said. ``They have been easily identified and we can address these issues - liquidity, prices and credit delivery.'' He said Prime Minister's Manmohan Singh's government will balance the objectives of growth and inflation, while pointing out that at this point the ``bias is in favor of stimulating growth.'' Still, he said the worst growth forecast for India this year is 7 percent, which is three times the world's economic expansion. To contact the reporter on this story: Cherian Thomas in New Delhi at cthomas1@bloomberg.net.

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