The International Monetary Fund has said the tightening of monetary policy by India is an appropriate step as the country is faced with high inflation and needs to consolidate the fiscal measures initiated during the slowdown.

Mr Abdul Abaid senior economist in the World Economic Studies Division of the IMF said that "India is relatively more closed, and has relied on stimulus to support growth. The main challenge will be to ensure durable fiscal consolidation, including by implementing fiscal and other structural reforms.”

He said in relation to other countries in the Asian region, India has high inflation and the tightening of monetary policy currently under way is appropriate.

Referring to the latest World Economic Outlook, he said that in India, growth is projected to be 8.8% in 2010 and 8.4% in 2011, which is supported by rising private domestic demand.

Mr Abaid said that "Consumption will strengthen as the labour market improves, and investment is expected to be boosted by strong profitability, rising business confidence, and favorable financing conditions.”

The IMF official said that in India's neighborhood, Nepal's real GDP growth is expected to slow to 3% in 2009-10 from 4.7% in 2008-09 due to poor monsoon and softer remittances, but growth is anticipated to strengthen again in 2010-11.

For Sri Lanka the IMF projects an acceleration in growth from 3.5% last year to 5.5% this year.

The official said that "There is currently an IMF program which we can't comment on, the key priority in Sri Lanka is basically to obtain a credible and sustainable reduction in the fiscal deficit going forward. That is the main vulnerability there right now.”

(Sourced from FE)