Washington, Feb 5 (Inditop.com) India and China with their large economies growing at 7 and 10 percent respectively are playing a significant role in global economic recovery, according to a top International Monetary Fund (IMF) official.
“It’s actually true, just by looking at the numbers and the weights that they have in the global economy,” Kalpana Kochhar, Deputy Director, Asia and Pacific Department told reporters in a conference call Thursday when asked about India and China’s role in the recovery.
“When you have two relatively large economies growing at 7 and 10 percent, respectively, India and China, they are contributing quite a lot to global growth,” she said.
Noting that IMF forecast for global growth for next year is close to 4 percent, of which advanced countries are only contributing less than 2 percent, Kochhar said: “So the rest of it is in fact coming from emerging markets, and from within emerging markets, a large part from China and India.”
“So it’s a significant contribution that’s coming from these two countries,” she added noting India was one of the first countries to recover from the crisis.
“It benefited from the normalisation of global financing conditions and the return of risk appetite, but also benefited from fiscal stimulus that was already in the pipeline and from timely monetary and further fiscal easing after the crisis broke out.”
After annual Article IV consultations with India last month, IMF has projected India’s growth to reach 6.75 percent for the fiscal year ending March, 2010, and then rising to 8 percent for the year ending March, 2011.
IMF “believed there are a lot of indications already in the pipeline that suggest that this recovery will in fact occur and will broaden,” Kochhar said. But “along with the recovery, we’ve seen an upward rise in prices. Inflation has picked up. Some of it is due to food, but some of it is also due to demand pressures.”
Against that background, IMF welcomed the moves that were taken by the Reserve Bank of India (RBI) just last week to tighten monetary policy, Kochhar said. “And we believe that, given current trends, there should be further gradual withdrawal of monetary accommodation.”
While the stimulus measures were instrumental in supporting activity during the crisis, it has pushed the deficit into double digits again, and the debt back to nearly 80 percent, Kochhar said.
IMF, therefore, recommend that the fiscal adjustment strategy begin with this next budget suggesting that it should be anchored on a debt target along with some nominal expenditure rules.
However as noted in its report just setting a debt target isn’t enough. It has to be accompanied by measures on both the revenue side and the expenditure side, particularly subsidy reform, Kochhar said.
The third issue that IMF focused on was in financial sector reform, particularly reforms that would be beneficial to finance the major infrastructure investment that the government of India is planning over the next few years, she said.
