INDIA: CAUTIOUS POLICY

GLOBAL UNCERTAINTY HIGHLIGHTS THE NEED FOR A CAUTIOUS APPROACH TO INDIA'S MACROECONOMIC POLICY

Anoop Singh

The Economic Times, October 12, 2012

The world's economic policymakers are gathering this week in Tokyo for the annual meetings of the International Monetary Fund (IMF) and the World Bank. The location of the meetings in Asia offers an opportunity to reflect on the IMF's outlook for the economies of Asia, including India.

First, it's important to take stock of how the global economy is faring. The IMF continues to project a gradual recovery, but a bit weaker than we had earlier expected.

We currently forecast global growth of about 3.3% in 2012, rising to 3.6% in 2013 (details are available at www.imf.org/weo.) As has been the case for some time, emerging market and developing economies are growing more rapidly than the advanced countries.

Also important to note is the fact that this projection is predicated on two assumptions: first, that euro area policymakers will adopt policies sufficient to ease financial conditions in countries under strain and, second, that US policymakers will find a way to avoid the drastic spending cuts and automatic tax increases, the so-called 'fiscal cliff', implied by existing budget law.

However, we have seen also a deceleration in major emerging markets and, as our managing director has said, "the illusion of decoupling has vanished".
What about Asia? Taking advanced, emerging and developing countries together, Asia's GDP growth was about 5½% in the first half of 2012, the lowest figure since the 2008 global financial crisis erupted.

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