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India's apex bank, the Reserve Bank of India (RBI), is likely to begin monetary-tightening in the first half of next year, reports the Economic Times. A deficient monsoon has impacted the agricultural output resulting in a slow recovery of the economy.
The government will slowly restore fiscal discipline and permit market forces to play a longer role in economic development. Once the development begins, the concern will be controlling inflation.
The country's economy has largely recovered from depression, and policy-makers are moving from monetary strategies to fiscal stimulus. The country should sustain growth in the coming years to raise employment and lessen poverty, a widespread concern.
Moody's Economy.com expects the RBI to only tighten the monetary policy when GDP growth goes above 7%, and inflationary pressures start raising.
Sherman Chan, an economist at Moody's Economy.com said that to boost growth without pressurizing an already heavy fiscal burden, policy-makers were likely to explore non-expenditure avenues, including encouraging foreign inflows and domestic competition.
The Indian economy, on the recovery path, is concerned with the high variation between the wholesale price index which remains negative for over 12 weeks against the consumer price index in double digits. Authorities are particular in preventing inflation, which is also a reason why the country is first in the world to tighten its monetary policy.
However, the government is responsible for the inflation, as measures that constantly keep farm prices artificially high, have been a major reason for the lack of retreat in CPI growth even during the economic downturn.
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