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IMF urges India to curb inflation

The International Monetary Fund has urged India to reduce government expenditure and domestic subsidies in order to reduce inflation and ward off pressures from the Asian financial crisis.

In its annual review of member countries' economies, the IMF commended New Delhi yesterday for tightening the money supply in response to the Asian crisis, and said, ''Monetary policy would continue to bear a heavy burden in ensuring ... stability.''

''Monetary policy should be firmly focused on a low inflation objective,'' the IMF said, cautioning against ''a premature easing of the recently tightened monetary stance and further monetisation of the deficit.''

Since Thailand started the Asian tailspin in July 1997, the rupee has depreciated by 17 per cent against the US dollar, the Fund said. Economic sanctions imposed in May following India's nuclear tests have hurt its trade situation, and consumer price inflation had jumped to 12.5 per cent.

The IMF warned of ''substantial risks'' to India's continued prosperity, not just from weakened demand in Asian markets but also from structural problems at home worsened by political instability and the economic sanctions.

The Fund ''cautioned that the authorities' strategy of orienting fiscal and monetary policies toward supporting domestic demand could risk further straining macro-economic stability.'' It suggested ''bold'' steps, including trade liberalisation, to convince international markets that India is committed to reforms.

The IMF's directors also urged New Delhi to reduce government deficit by not printing extra money and by increasing the tax base and eliminating costly tax exemptions in agriculture and export sectors.

UNI