Also, during 2011, the rising trend in International prices of oil, already above 85 dollars a barrel, and other commodities could further worsen India’s high inflation which has remained a conundrum for our Government. Growth and inflationary pressures provide the setting for RBI to raise the policy lending rates further in its mid-December review of monetary trends.

India’s dramatic recovery from the spill-over effects of global crisis has earned praise from the IMF Managing Director Mr Dominique Strauss-Kahn on his visit to New Delhi on December 2. He said India is an economic power-house, growing fast, and with the right mix of policies to make growth inclusive as well as to safeguard financial stability in the face of surge in capital flows, avoiding massive intervention or tightening the existing system of capital controls.

However, while the Finance Minister Mr Pranab Mukherjee remains boastful of returning to pre-crisis growth of 9 to 10 per cent from the next fiscal, the IMF Chief cautioned that while the current pace of growth is well-managed, accelerating it may run into risks of inflation and current account deficit increases. Of greater concern at present for the Finance minister may be the fragile and uneven recovery in the global economy.

In the first half of 2010/11 (April-September), GDP growth was 8.9 per cent according to CSO estimate. Agriculture, industry and services recorded 3.8, 11.3 and over 9 per cent respectively in this period. WPI and CPI in October were 8.58 and 9.7 per cent. Inflation in “primary articles” was still around 14 per cent in the second week of November while fuel & power index was 10.57 per cent. In the current fiscal year, primary articles as a whole and food articles had risen by over 9 per cent each till mid-November, though half of what they were in the corresponding period of last year.

Global growth projections for 2011 had been revised down for almost all countries by IMF recently, and even more sharply in the UN Survey released on December 1. To some extent, a lower pace of growth for the world economy is inevitable after the upswing in 2010 following a year of unprecedented contraction in global output and trade flows.

The UN Survey says that global outlook deterioration is because of the continuing levels of high unemployment and the fiscal austerity in many developed countries which are impeding a quicker turnaround. Added to it is recurring bouts of turmoils in sovereign debt markets in the euro-zone. These could spill over to the real economy and across regions, as the IMF points out

According to UN, World growth will slow down to 3.1 per cent from 3.6 per cent in 2010 and rise to 3.5 per cent in 2012. These rates are insufficient to spur the strong revival needed in the employment situation in developed economies where some 22 million jobs had been lost. Efforts to embark on fiscal austerity can only further suppress the prospects for faster recovery of employment. “We are not out of the woods yet and major risks are looming” Mr. Rob Vos, Director of Development Policy, UN said.

The projections for 2011 and 2012 are 2.2 and 2.8 per cent for USA (2.6 in 2010), 1.3 and 1.7 per cent in eurozone, and 1.1 and 1.4 per cent in Japan. China and India will also see growth trending down from 10.1 in 2010 to 8.9 and 9.0 (China) and from 8.4 per cent in 2010 to 8.2 and 8.4 per cent for India over the next two years. Developing countries in Asia, led by China and India, continue to show strong growth performance but will moderate to 6 – 7 per cent over the next two years. Trade growth in volume is estimated at 6.6 and 6.5 pr cent respectively over this period.

UN says the overall picture is gloomy all the more because of waning of the spirit of cooperation among major economies which has weakened the effectiveness of country responses to the crisis. Lack of coordination is evident in the monetary policy and quantitative easing in USA and fall in the value of dollar could trigger exchange rate volatility and trade protectionism.

Despite the notable progress made by the banking sector in disposing of its troubled assets, UN Survey said, many of the banks in major developed countries remain vulnerable to multiple risks. Those risks include a further deterioration in real estate markets, more distress in sovereign debt markets, and continued low credit growth associated with overall economic weakness and the ongoing deleveraging among firms and households

The surge in capital flows to emerging and other developing economies and the consequent pressures on currencies are complicating the international environment for developing countries. Policies to restructure the economies in support of sustained growth become all the more challenging. The spillover effects of national policies are significant and constitute a potential source of renewed instability. This once again highlights the need for strengthened international policy coordination

Taking cognizance of the lack of coordination among major economies and the slow recovery, IMF has announced that it would intensify focus on global policy cooperation in order to ensure a more balanced global recovery and ease existing strains in the international monetary system. It will also build a strong global financial architecture. The IMF Managing Director has presented a new work programme for the coming year.

Accordingly, IMF will publish the initial spillover reports for China, the Euro Area, Japan, United Kingdom and the United States in the second half of 2011. The reports will assess the impact of domestic policies of these systemic countries beyond their borders, and will also contribute to the IMF’s broader surveillance efforts.

In addition, the IMF will continue to support the G-20 Mutual Assessment Process (MAP) by analyzing the adequacy of G-20 policies to promote global rebalancing and suggesting possible policy adjustments

Executive Board will start discussing the case for a multilateral framework to analyze and deal with cross-border capital flows in December 2010, followed by discussions of specific country experiences and of the Fund’s policy advice to countries dealing with strong capital inflows

The Executive Board is also scheduled to examine the case for enhancing the role of Special Drawing Rights (SDRs) as a reserve asset and unit of account in early-2011.(IPA Service)