JOIN USStrong domestic economy helps India fight crisis: US
In its report to the US Congress on ‘International Economic and Exchange Rate Policies’, the Treasury Department also said that India has used both monetary and fiscal policy to stimulate the economy.
“India’s economy is less exposed to the international economy than many other emerging markets, and this has reduced the effect of the crisis on the Indian economy. Exports are a smaller share of output than in most Asian economies and controls on capital flows are greater,” the Treasury Department said. To bolster the nation’s slowing economy, the Indian government had come up with fiscal stimulus measures, including those to boost consumption, exports and investment in infrastructure early this year. In the wake of the global financial turmoil, India’s economic growth slowed to 7.4 per cent in 2008, after growing over nine per cent for three years.
Monetary policy
Noting that India has used both monetary and fiscal policy to stimulate the economy, the report said current account deficit narrowed to 1.5 per cent of GDP in the first quarter of 2009, as imports declined by twice the rate of decline in exports. “In the second quarter, a rebound in trade flows resulted in a rise in the merchandise trade deficit but a rising surplus in trade in services and increases in transfer payments resulted in a further reduction in the current account deficit to 0.9 per cent of GDP,” it added. The Treasury Department pointed out that the stated aim of foreign exchange intervention is to smooth volatility. “While the RBI seeks to achieve its monetary objectives of price stability and well-anchored inflation expectations by adjusting market liquidity through its policy rates and the cash reserve ratio, at times, it has used the exchange rate to help meet monetary objectives,” the report noted.