Battle slowdown by taking monetary steps, IMF tells India

Lalit K Jha

Washington, Mar 18 (PTI) The IMF Wednesday advised India
to initiate more monetary steps to battle the country's
slowing economic growth, which the international multilateral
agency expects to moderate to 6.25 percent in the current
fiscal and fall further by one percentage point in 2009-10.

With inflation softening to a six-year low of 2.43 per
cent, there is scope for further easing of monetary policy,
the IMF said in its review of the economy following Article
IV consultations with the Indian authorities.

"A number of (IMF) directors saw scope for further
monetary easing, in (the) light of the projected decline in
inflationary pressures and the need to reinforce confidence
and sustain bank credit," the review said.

The IMF expects average inflation to moderate to 2 per
cent in 2009-10 from about 8.8 per cent in the current fiscal.
Inflation has been coming down consistently after touching a
peak of 12.91 per cent in August last year.

The gross domestic product (GDP) growth rate in the
current fiscal has been projected at 6.25 per cent by the IMF,
as against the government's forecast of 7.1 per cent.

The IMF expects the growth rate in the next fiscal
(2009-10), beginning less than a fortnight from now, to fall
to 5.25 per cent.

As part of the annual exercise to review the economies
of the member countries, the IMF's executive board had held
consultations with the Indian authorities on February 6.

While suggesting that India focus on monetary measures,
the IMF cautioned that additional expenditure and more tax
reliefs for fighting economic slowdown could raise public debt
to unsustainable levels.

Noting that the key short-run policy objective should be
to sustain liquidity and credit flows, the review said
"monetary and structural policies will have to continue to
carry most of the burden of adjustment".

The "sizeable fiscal stimulus" of 2008-09 would support
economic growth in India, the review said, adding, "given the
high ratio of public debt to GDP, significant further
expansion of the deficit could raise concerns about fiscal
sustainability".

In a bid to boost money supply and ease interest rates,
the RBI has gradually reduced the short-term lending (repo)
rate and the cash reserve ratio (percentage of assets that
banks keep with the RBI) to 5 per cent from 9 per cent in
September.

The central bank has since mid-September injected more
than Rs 4,00,000 crore into the system to help industry
reeling under the impact of global financial meltdown.
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