'India faces twin risks of inflation, fiscal deficit'

India has little room for another round of fiscal stimulus because of the widening revenue gap and large domestic debt, said Guillermo A Calvo, professor of economics, Columbia University.

Calvo, who was in India to give the sixth annual India policy forum lecture organised by National Council of Applied Economic Research (NCAER), said India faced twin risks in the form of inflation and fiscal deficit, which, he said, was approaching 9-10 per cent of the Gross Domestic Product (GDP).

He said inflation could be contained by using international reserves, but this increases the probability of another “sudden stops” in the economy. He described the current contraction in foreign credit flow as one example of sudden stops.

Calvo said India had been successful in countering the current sudden stop by drawing down its vast international reserves.