Stimulus withdrawal best for India’s economy: Subbarao

According to the Reserve Bank of India (RBI) governor Duvvuri Subbarao the withdrawal of stimulus is in the best interest of the economy in the current scenario of high inflation. The central bank chief pointed out that it had started withdrawing the emergency measures introduced in the financial crisis.

"The details are not important, but what message you must get is that we have begun in earnest the process of reversing from the expansionary stance," he said in his address to the Peterson Institute for International Economics, a Washington-based think tank, last night.

"We started unwinding in October 2009. We terminated unconventional measures first, we raised SLR and brought it back to the pre-crisis level, we raised the CRR on the banks by 75 basis points by end of January and another 25 basis points last week. We raised policy rates, once mid-March and again last week by a total of 50 basis points," said Subbarao.

He added that in the near-term the reversal of monetary stimulus could hit growth but there was a sacrifice ratio there. But in the long-term and the medium-term sustained inflation was inimical to growth, so inflation had to brought under control, he said.

Subbarao said that getting into the expansionary stance was relatively simple, but the dilemma according to him was how to the withdrawal would be calibrated because of the implications of what would need to be done if one were to get it wrong.

WPI inflation would be about 5.5 per cent by end of March he said.