India needs to speed up its tightening of monetary and fiscal policies to levels before the global slowdown to help bring down soaring inflation, the International Monetary Fund said on Wednesday.
India's economic growth is expected to remain above trend in the coming year, and inflation measures are in the 8.5 per cent to 10.5 per cent range, the IMF said in its regular report on the economy, known as an Article IV consultation.
This strong economic growth has attracted a heavy flow of foreign capital, which can help spur much-needed investment in India but could also complicate macroeconomic management, the IMF cautioned.
"Near-term challenges confronting the authorities arise from elevated inflation, fiscal consolidation needs, and buoyant capital inflows, warranting careful calibration of macroeconomic policies and the diligent pursuit of ongoing reforms," IMF directors wrote in their assessment.
The IMF said most directors recommended the Reserve Bank of India take further steps to tighten monetary policy, noting that real interest rates were below historic norms and at the same time, financial conditions were comfortable.
They also saw "merit" in strengthening fiscal consolidation to remove more quickly the stimulus put in place during the global financial crisis.