India set for solid recovery: ADB

India’s economy is poised for a solid recovery in 2010 as the global financial crisis fades, but policymakers need to address inflation and the widening fiscal deficit to buffer it against the impact of future global shocks, said a new study commissioned by the Asian Development Bank (ADB). The study, Impact and Policy Responses - India, said that the Indian economy has emerged from the crisis relatively unscathed and quickly regained growth momentum, thanks to its own stimulus actions, past reforms, banks’ limited exposure to troubled parts of the global financial system, as well as India’s robust domestic consumption. Offsetting these positive developments were signs of an increase in inflation and a worsening trade deficit in the latter part of 2009. In addition, the nature and extent of the global recovery remained fragile and uncertain, with developed markets such as the US and Europe yet to show evidence of a sustainable and private sector-led economic turnaround. The study said that India was fortunate the crisis was not protracted, which would have tested the government’s ability to continue fiscal stimulus measures for a long period, and potentially compromised its efforts to boost the economy. Moving forward, India will have to try and improve its fiscal position through more disciplined fiscal management, said the study.