High oil prices behind inflation in India, monetary tightening wanted: IMF

The surge in oil prices as a result of Ukrainian conflict has pushed up inflation in India, which wants monetary tightening and measures to deal with structural weaknesses to enhance development potential, mentioned a senior IMF official.

According to estimates, the nation’s financial system is more likely to develop at 8.2 per cent in 2022-23, down 0.8 per proportion factors, mentioned Anne-Marie Gulde-Wolf, Acting Director of the IMF’s Asia and Pacific Department.

“So while still strong, it is a significant downgrade. We really see the difficult policy trade off for policymakers supporting the worldwide controlling of inflation, which has already started going up,” she advised reporters at a information convention right here.

“The reason why inflation has gone up is really the spillovers from the war in Ukraine, where India is particularly dependent on oil and commodity imports,” she mentioned.

In the brief run, we expect a commodity fiscal stance is suitable, supporting weak households and placing concentrate on infrastructure funding, the IMF official mentioned responding to a question.

She really helpful monetary tightening and measures to test structural weaknesses.

“Well-communicated monetary policy actions are needed but probably some monetary tightening,” she added.

“To enhance India’s growth potential, it is important to address structural weaknesses of the Indian economy that provide bottlenecks to achieve longer-lasting growth. These bottlenecks are in the labour market, land market, better educational outcomes, and very much also getting higher share of females into the labour force,” mentioned the IMF official.

“So, in sum, the potential is definitely there but it will require policy actions,” she mentioned.

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