IMF warns India of higher inflation if growth accelerates

New Delhi, Nov 2 (PTI) The International Monetary Fund
(IMF) Thursday cautioned India that its economy growing at a
faster clip than the current level could aggravate inflation.
IMF Managing Director Dominique Strauss-Kahn said if
economy grows faster than the current pace, it could could
create some risk in current account deficit situation as well.
Observing that no one is certain when another crisis will
hit the global economy, Strauss-Kahn also advised the
government to use the higher tax collections for fiscal
consolidation.
Amid media reports that Planning Commission Deputy
Chairman Montek Singh Ahluwalia may in the race for the
top-most position in IMF, Strauss-Kahn said he favoured
someone from outside the US and Europe to head the
multilateral agencies --International Monetary Fund (IMF) and
the World Bank.
He met Prime Minister Manmohan Singh, Finance Minister
Pranab Mukherjee and senior officials and industry leaders
during his one-day visit to India.
On the issue of sustained capital inflows, the he said
the foreign money will help India improve its infrastructure.
"The forecast we had in the IMF is exactly what you are
following now which is probably the maximum that the Indian
economy can provide these days so you are running as fast as
you can. More will be probably too much because more will
create some risk on inflation side, also on current account
side," Strauss-Kahn said.
The remarks assume importance in the back of India
recording 8.9 per cent growth in the first half. The
government is likely to revise upwards its growth projection
for this fiscal from 8.5 per cent.
"We had earlier given a projection of 8.5 per cent. We
will revise it. It is very very likely that it will be revised
a little bit (upwards)," Chief Economic Adviser Kaushik Basu
said on sidelines of interactive session with the IMF head.
On the other hand, inflation has also started coming
down. Food inflation has softened to single digit after four
months to 8.6 per cent during the week ended November 20.
Overall inflation has also declined to 8.58 per cent in
October from 8.62 in September.
India's current account deficit, representing net flow of
income out of the country barring capital movements, surged
three-fold to 13.7 billion dollars in the April-June quarter
over the same period last year.
On fiscal consolidation, IMF Chief said, "The main
challenge is to use fruits of high growth to come back to
fiscal side. It is time to maintain fiscal buffer because you
don't know when will another crisis will come."
He said one of the lessons of this crisis is very clear--
that is the value of fiscal space.
"That is very important for India because India's
commitment to ambitious medium term deficit and debt reduction
target is very important," he said. (More) PTI