Even as the Reserve Bank cut banks’ cash reserve ratio by half a per cent but kept policy rates unchanged, the International Monetary Fund (IMF) on Tuesday suggested India be cautious on monetary and fiscal easing because of high levels of inflation and public debt. The IMF also cut its economic growth projection for this country to 7.4 per cent in calendar year 2011 from the earlier 7.8 per cent and by 0.5 per cent to seven per cent for calendar 2012. In its latest World Economic Outlook, it said it expected weaker global economic growth in both calendar 2011 and 2012 due to expectations of the euro area economy going into mild recession this year. Recession is generally taken as two consecutive quarters of negative GDP growth. The IMF expects euro area GDP to contract 0.5 per cent in 2012. “Those (economies) that suffer from both relatively high inflation and public debt (including India and various economies in the Middle East) may need to take a more cautious stance (than other emerging market economies ) on any policy easing,” the IMF said. On any fiscal easing in India, the IMF said in a separate report that the cyclically adjusted deficit was projected to fall by about 0.5 per cent of GDP this year. “However, the space for loosening fiscal policy in response to a growth slowdown is limited by still high deficits and debt,” it warned. It suggested that in case of a substantial fall in output, any prospective expansion should be small and focused on high-multiplier items such as indirect taxes and backlogged capital projects, rather than additional subsidies. Wholesale price-based inflation in India came below nine per cent for the first time in a year to 7.47 per cent in December, on the back of falling food prices. While food articles saw deflation for three weeks in a row till the first week of January, manufactured inflation was still elevated at 7.41 per cent in December, despite moderation from 7.7 per cent in November. The latest data shows government liabilities in India, both Centre and states, rose a little over 12 per cent to Rs 56.09 lakh crore in 2010-11 from Rs 50.05 lakh crore a year before. The liabilities, both external and internal, were 71.2 per cent of India’s GDP in 2010-11.
 
(Source: Business Standard)