ADB has urged Indian policymakers to address rising inflation and widening fiscal deficit to insulate the country against future shocks
The Asian Development Bank (ADB) on Friday said that India is poised for a strong recovery this year and urged policymakers to address rising inflation and widening fiscal deficit to insulate itself against future shocks, reports PTI.
Noting that India has quickly regained growth momentum, the bank said the country has emerged from the global financial crisis relatively unscathed, mainly on account of stimulus measures, past reforms, robust domestic consumption and banks' limited exposure to the global financial system.
"India's economy is poised for a solid recovery in 2010 as the global financial crisis fades, but policymakers need to address inflation and the widening fiscal deficit to buffer it against the impact of future global shocks," ADB said. The conclusions are part of the study 'Impact and Policy Responses—India', commissioned by the bank.
India's gross domestic product (GDP) grew 7.9% in 2009’s third quarter. However, the report said positive economic developments were offset by signs of increasing inflation and a worsening trade deficit in the latter part of 2009.
"India was fortunate the crisis was not protracted, which would have tested the government's ability to continue fiscal stimulus measures for a long period, and potentially compromised its efforts to boost the economy.
“Moving forward, India will have to try and improve its fiscal position through more disciplined fiscal management," the study noted.
Emphasising the need for subsidies to be streamlined or replaced by more targeted measures, the bank said a “new fiscal management framework should rectify shortcomings of the Fiscal Responsibility and Budget Management Act (FRMBA) of 2003”.
The multilateral lending agency said that India should provide fast acting social "stabilisers" to help poor communities, which would help in building greater resilience to withstand future crises.
"This could include quick support for workers laid off as a result of a recession. On the monetary policy front, policymakers should make the consumer price index the primary indicator of inflation, instead of the current two-tier measurement system, which leads to inconsistencies and confusion," the study noted.
According to ADB, wide-ranging measures, including reduction of fiscal deficit, bringing down bad loans of banks and lowering dependence on imported oil, are required to shore up the economies in other parts of South Asia. Yesterday, the bank said Asia is set for accelerated growth in 2010.