NEW DELHI: The International Monetary Fund (IMF) lauded India’s ability to keep a tight rein on spending and monetary policy as it battles an economic slump and inflation, praise that comes amid signals of a difference of opinion over this between the government and the Reserve Bank of India.
“Executive directors commended the Indian authorities for their ability to maintain macroeconomic and financial stability amid a challenging macroeconomic landscape,”IMF said in a statement on Thursday, welcoming efforts to reduce external vulnerabilities, rebuild buffers and revive investment.
Finance minister P Chidambaram slashed spending and put in place several measures to ensure that the fiscal deficit was reined in. Meanwhile, the central bank has said that bringing down inflation is key to shoring up growth, which slumped to a decade low last year. IMF pinned most of the blame for India’s slowdown on domestic factors.
Chidambaram reiterated after presenting the interim budget on Monday that central bank policy should be subservient to the overall economic vision of the government, which seemed to echo the reasons for the testy relationship he had with former governor D Subbarao.
It was believed at the time that the central bank was keeping too tight an inflation focus without paying enough attention to boosting economic growth.
The finance minister also said that the next government, which will be formed after elections that are imminent, should continue to maintain control of economic direction.
The IMF said however that the Indian authorities should be ready for further monetary tightening to bring inflation down to sustainable levels. It welcomed the RBI’s initiative to strengthen the monetary policy framework.
The central bank, which has raised interest rates by three quarters of a percentage point since September, recently made public a report by an internal panel that said managing inflation should be its prime policy objective. It said the goal should be to bring consumer price inflation down to 4%, with a 2% band on either side. Inflation based on the consumer price index was 8.79% in January.
The IMF report follows bilateral discussions that it usually holds with members every year under the Articles of Agreement. India and IMF, however, continue to differ over the latter’s assessment of the country’s growth. This had come to the fore in the October IMF-World Bank meetings in Washington when the government rejected IMF’s 3.8% growth forecast (4.25% at factor cost) for the current fiscal.
India’s own initial estimate says the economy will expand 4.9% at factor cost in 2013-14.
IMF expects the Indian economy to expand 5.4% in 2014-15, an estimate also regarded by the government as being on the lower side.