OECD sees more sustainable growth for India

India will return to a more sustainable pace of growth as a sharp rebound in agricultural output slows, the Organisation for Economic Cooperation and Development (OECD) said. India has avoided an inflationary spiral due to slowing gains in food prices the Paris-based agency said in its twice-yearly outlook report. Still, the RBI needs to tighten monetary policy further because fuel prices remain high, credit demand is strong and capacity is scarce, it added. Strong business investment and personal consumption will support the Indian economy, which is projected to expand 8% next year and 8.5% in 2012, according to the OECD. Economies in the Asia-Pacific region will continue to recover in the next two years thanks to solid domestic demand and exports, but many countries need higher interest rates to counter inflation, the OECD said.

Capital is flowing to emerging economies in the region because their growth prospects are better than those of major economies, leading some countries to intervene in the currency market or introduce capital controls, it said. A certain amount of appreciation in Asia-Pacific currencies would help correct economic imbalances, and countries should refrain from currency intervention as it could encourage protectionism, the OECD said. "The challenge for most monetary authorities will be to exit from exceptional stimulus in a way consistent with macroeconomic developments," the OECD said. "Some countries have been reacting to capital inflows through unilateral measures. Protracted unilateral action of this sort is likely to have little or even counterproductive effects."