India may lead G-20 in stimulus exit

“There are clear signs of an upturn in the economy,” Singh told the India Economic Summit organized by the World Economic Forum in New Delhi Sunday. “Like other countries we resorted to a significant stimulus and we will take appropriate action next year to wind this down.”

Singh's comments are at odds with policy makers from the U.S., Japan, Australia and other G-20 nations who said at the weekend it's too early to withdraw fiscal steps designed to support global recovery. India's central bank last month began to tighten monetary policy amid concerns that an inflation flare-up may hit the pockets of close to 800 million Indians who live on less than US$2 a day.

“Demand in India has picked up and a continuation of stimulus may not be necessary next year,” said Arun Duggal, chairman of Shriram Transport Finance Co. Ltd., the nation's biggest financier of trucks and buses. “Stimulus should remain in developed countries as their economies are in a more fragile state and could tip backward.”

Singh said India's economy may grow 6.5 percent in the year ending March 31, constrained by weak monsoon rains that hurt crop production. With better rainfall in the four-month season starting June 2010, the economy may expand over 7 percent in the year commencing April 1, he said.

India's economic strides prompted Wal-Mart Stores Inc., the world's largest retailer that has a wholesaling venture with the local Bharti Group, to open as many as 40 more “cash & carry” stores in the country. Wal-Mart opened its first Indian wholesale store on May 30, with initial plans to start 10 or 15 more outlets during the next three years.

Tata Steel Ltd., India's biggest producer of the alloy, reported October sales rose 38 percent, while sales at Bajaj Auto Ltd., the nation's second-largest motorcycle maker, gained 46 percent during the month.

India began to tighten monetary policy as the central bank forecasts inflation to accelerate to 6.5 percent by March 31 from 1.51 percent. Asset prices have been climbing as well, evidenced by the 68 percent rise in the key Sensitive index on the Bombay Stock Exchange.

The Reserve Bank of India on Oct. 27 ordered lenders to keep more cash in government bonds, raising the statutory liquidity ratio to 25 percent from 24 percent. Governor Duvvuri Subbarao said it was appropriate for the central bank to exit monetary stimulus in a “calibrated way.”

The rupee advanced 0.6 percent to 46.55 per dollar as of 9:40 a.m. in Mumbai, rising for a fourth day, on speculation an improving economy will attract more foreign investment. The Sensex gained 0.7 percent, to 16,268.23 at 9:56 a.m.

Raghuram Rajan, former chief economist at the International Monetary Fund and now a professor at the University of Chicago, said it was “quite appropriate” for the Indian government to think about winding down fiscal stimulus.

India's central bank needs to consider an exit from monetary stimulus as interest-rate policy needs to be conducted with “foresight,” Rajan said. “By the time inflation starts picking up, by the time capacity constraints start showing, it's too late to do it with monetary policy.”

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