The International Monetary Fund (IMF) has lauded India's ability to keep a tight check on spending and monetary policy in the face of snail-paced economic growth and soaring inflation, especially amid difference of opinion over handling these two toxic factors between the government and the Reserve Bank of India (RBI). It was all praises for Indian authorities for their ability to maintain macroeconomic and financial stability amid a challenging macroeconomic landscape.
In consonance with the views, while Finance minister P Chidambaram slashed spending and put in place several measures to ensure that the fiscal deficit was contained at desired level, RBI Governor Raghuram Rajan, a former IMF chief economist, raised the key repo rate by 75 basis points to 8.00 percent since becoming head of India's central bank in September.
IMF however has recommended RBI to go for more interest rate hikes, given the sticky nature of inflation. Further, it also revised its previous forecast upwards to a 4.6 per cent GDP growth in FY14, which would improve to 5.4 per cent in FY15. Though, the new growth estimates are higher than the IMF’s previous forecast of 3.75 per cent in the current fiscal and 5.1 per cent in the next fiscal, India is way more optimistic about economic recovery, given that Interim Budget 2014-15 has pegged the economy’s growth at 4.9 per cent this fiscal and at least 6 per cent in FY15.
Further, the report, which comes just ahead of spring meeting of IMF, said that India was successful to shore up its growth and revive investor sentiments since July last year. The report pointed that while, no further policy changes were assumed in the baseline, but slightly stronger global growth, improving export competitiveness, a favorable monsoon, and a confidence boost from recent policy actions would deliver a modest growth rebound in the near term.
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