The Indian economy has weathered the global downturn relatively well. After slowing sharply in late 2008, growth recovered during the first half of 2009 and recent high-frequency indicators suggest that momentum is strengthening. In the near term, the ongoing recovery will be only modestly hampered by poor monsoon rainfall. Growth is projected to reach over 7% in 2010 and 7.5% in 2011. Inflation has been rising since mid-2009 and is expected to remain high over the projection period.
Given the resurgence of inflationary pressures so early in the recovery, a key challenge facing policy makers is ensuring a timely withdrawal of fiscal and monetary policy stimulus. Reining in the large fiscal deficit, which has widened further in 2009, will be particularly difficult given both its magnitude and the permanent nature of recent increases in spending.
©OECD Observer December 2009-January 2010