“Since we are increasingly getting integrated with the rest of the world, increasing weight is given to global developments, in particular developments in the United States,” Reddy said in an interview with the British Broadcasting Corp.

The Fed reduced its key rate for the first time since 2003 by a bigger-than-expected half point to 4.75 percent on Sept. 18.

The Reserve Bank of India, which has raised borrowing costs nine times since October 2004 to curb inflation, left its overnight lending rate unchanged at 7.75 percent at its last meeting on July 31. Reddy and his colleagues next meet Oct. 31.

The central bank is not worried about inflation now, Reddy said. India’s inflation slowed to 3.32 percent in the first week of September, the lowest rate since 2002.

“We are happy that inflation expectations are quite benign now,” Reddy said in the interview. “We are looking at a medium-term objective of 4 percent to 4.5 percent, and ideally a rate toward 3 percent.”

Slower growth in agricultural output is one of the biggest challenges faced by the world’s second-fastest expanding major economy, Reddy said.

Annual growth in India’s farm output fell to 2.2 percent in the five years through March from 3.1 percent during the 1990s and 4.7 percent during the 1980s, according to the Reserve Bank’s annual report released Aug. 30. The economy grew 9.4 percent in the fiscal year through March, accelerating for a third straight year.

“Sixty percent of the population is dependent on agriculture and if agriculture is growing badly at 2.5 percent or something like that, that means prosperity is eluding them,” Reddy said. “The huge productivity increase can’t go on forever only in manufacturing and services.”

The impact of a possible U.S. economic slowdown following the subprime credit crisis may be less on India, compared with other emerging economies, according to Reddy.

“We are less dependent on the U.S. economy compared with other emerging-market economies,” he said. “Yes, there will be some impact, but the impact is likely to be less than most other emerging-market economies.”

India’s state governments aren’t spending enough on developing education and health facilities, Reddy said Sunday at an economic conference in the southern Indian city of Chennai.

“State government expenditure on education and health remains low at around 2.5 percent of GDP and 0.7 percent respectively,” he said. “These expenditures need to be enhanced to make a long-term impact.”

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