New Delhi, Nov. 2: The International Monetary Fund said today the Indian economy has shown its ability to withstand the shocks of drought and oil price hike, indicating the country’s macro-economic stability.
“Indian economy has shown remarkable resilience despite drought and oil shocks,” IMF executive director Y.V. Reddy said here.
Addressing a Ficci seminar on world economic outlook, the former deputy governor of Reserve Bank said it demonstrated the macro-economic stability and confidence of the policies.
He said whenever India faced such “shocks”, it had to resort to off-budget exercise to makeup for the shortfall.
Considering the performance in the equity, currency and bond markets, Reddy said, “impact of the world economy may be somewhat moderate for India.”
Pitching for a two-track system of liberalising trade regime in view of the “absence of strong and fair financial system in the world,” he said there was a need for a system to take advantage of the emerging opportunities.
Reddy expressed hope that liberalisation of trade and agriculture would come up in “due course” and India had made efforts in this regard after becoming the member of WTO.
He cautioned that financial liberalisation not supported by similar activities in trade could lead to problems and in this regard “some caution had been exercised by the government”.
“Think globally and act nationally,” he said indicating the strategy to be adopted by the country.
Reddy cautioned that once the financial system opens up, financial intermediation will go outside the country.
Responding to a query whether the hard currency would collapse and have an impact on the Indian economy, he ruled out such possibility.
“Stakes are high and the problem is well known. Therefore, the players will not allow it (collapse of dollar) to happen,” the IMF official said.
He, however, said any external imbalances would not have that much impact on India as it was for other economies since the country had fixed exchange rate element, which would give “immunity”.
Citing the surpluses created by EU and Japan and deficits borne largely by the US, he said surplus economies should go in for restructuring and deficit economies should incorporate fiscal consolidation.