India’s Recent Macroeconomic Performance: An Assessment and Way Forward
IMF Working Papers, April 29, 2014
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Bibliographic details
- Authors: Muneesh Kapur, Rakesh Mohan
- Published: April 29, 2014
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484360675.001
Summary
- The macroeconomic policy response in India after the North Atlantic financial crisis (NAFC) was rapid.
- The overshooting of the stimulus and its gradual withdrawal sowed seeds for inflationary and BoP pressures and growth slowdown, then exacerbated by domestic policy bottlenecks and volatility in international financial markets during mid-2013.
- Appropriate domestic oil prices and fiscal consolidation will contribute to the recovery of private sector investment.
- Fiscal consolidation would also facilitate a reduction in inflation, which would moderate gold imports and favorably impact real exchange rate and current account deficit.
Major findings and themes
- Rapid policy stimulus after NAFC was followed by an overshoot and gradual withdrawal, creating inflationary pressures and balance of payments (BoP) stress.
- Domestic policy bottlenecks and international financial market volatility during mid-2013 intensified the slowdown in growth.
- Interactions highlighted:
- Inflation and BoP pressures linked to stimulus dynamics.
- Fiscal stance and domestic energy pricing (oil) as key influences on private investment recovery.
- Fiscal consolidation expected to reduce inflation, moderate gold imports, and improve real exchange rate and current account deficit.
Policy recommendations and implications
- Adjust domestic oil prices appropriately to support macroeconomic stabilization and private sector investment recovery.
- Pursue fiscal consolidation to:
- Support reduction in inflation.
- Moderate gold imports.
- Favorably impact the real exchange rate and the current account deficit.
- Address domestic policy bottlenecks to complement external stabilization measures and foster growth recovery.
Keywords and subjects (as provided)
- Subjects: Deposit rates, Exports, Financial services, Government debt management, Imports, Inflation, International trade, Prices, Public financial management (PFM)
- Keywords: balance of payments, Capital Flows, central bank, consumer inflation, current account, Deposit rates, exchange rate, Exports, Fiscal Policy, Global, Gold, Government debt management, Growth, headline WPI inflation, Imports, India, Inflation, inflation expectation, Monetary Policy, Oil Demand, private sector investment, Savings, short-term debt, wholesale price index, WP, WPI inflation