Washington, Oct 11 (UNI) Elaborating India's economic situation at the IMF and the World Bank meet here today, RBI Governor D Subbarao said the current challenges are to rein in inflation without hurting the growth momentum, preserve financial stability and move more vigorously on fiscal consolidation.
Speaking at the International Monetary and Financial Committee, the policy making body of the International Monetary Fund(IMF), he said, ''India's balance of payments remained comfortable with the current account deficit at 1.5 per cent of GDP in 2007-08.'' Dr Subbarao led the Indian delegation to the annual IMF-World Bank annual meeting, currently in session here, on behalf of Finance Minister P Chidambaram, who cancelled his visit at the last moment owing to his preoccupation with the domestic financial crisis, triggered by global meltdown.
He said at the meeting that large net capital flows, which were significantly higher than the current account deficit, led to an accretion of foreign exchange reserves placing continued pressure on monetary management.
With a real GDP growth at 9.0 per cent during 2007-08, the Governor pointed out that the Indian economy continued to perform well. This was, in fact, the third year in succession when the Indian economy achieved a growth rate of 9 per cent and above.
He said headline inflation, however, had increased significantly since early 2008, partly reflecting supply-side pressures on key agricultural commodities, increase in iron and steel prices in line with international prices, and pass-through (though partial) of international crude oil prices to domestic prices as well as continued high domestic demand.
Turning to the current global financial crisis, Dr Subbarao said it underscored the need for further policy coordination among the regulatory and supervisory authorities in systemically important countries and the necessity for them to continually upgrade their skills and the instruments at their disposal.
'' There are also likely to be substantial fiscal costs with attendant implications. Once the immediate concerns are allayed and some calm is restored, we need to reflect on these critical issues and their policy implications,'' the Governor said. .
He, however, said emerging market economies (EMEs) had been less affected so far by the crisis. Their relative stability could be reflective of policy improvements, prudent practices, strengthened reserves and the strong growth performance in recent years.
Dr Subbarao said,'' The current crisis holds important lessons for EMEs which they should factor in as they move forward on financial sector reform.'' UNI XC GT HT2157