India relatively unaffected by global economic crisis: US

Due to India's limited dependence on external demand and strong fiscal and monetary stimulus measures, the global economic and financial crisis had a relatively muted effect on the country, the Obama Administration told the US Congress on Thursday.

"The global economic and financial crisis had a relatively muted effect on India, due to the country's limited dependence on external demand, and strong fiscal and monetary stimulus measures," the Treasury Department said in its semi-annual report to the US Congress.

Delayed by nearly three months, the 35-page report to the Congress on international economic and exchange rate policies, however, notes that the rate of growth of the Indian economy slowed down during the period of the global economic crisis, though it has bounced back.

"Economic growth slowed to 6.8 per cent in 2009, compared to an average rate of 9.4 per cent in 2005 to 2007. Real GDP expanded by 16.8 per cent on a seasonally adjusted annualised basis in the third quarter of 2009, before contracting in the fourth quarter by 2.8 per cent as the worst monsoon in nearly 25 years resulted in a steep decline in agricultural output," it said.

"The fourth quarter was only a pause in the recovery. The economy grew by 13.5 per cent on an annualised basis in the first quarter of 2010. The IMF expects the Indian economy to grow by 9.4 per cent in 2010," the report said.

Noting that the 2009 monsoon boosted inflation, it said rising food prices pushed average monthly CPI inflation to 13.3 per cent year-over-year in the second half of 2009, compared to an average of 9.6 per cent in the first half of the year.

In April, 2010, CPI inflation in India stood at 14.4 per cent.

As a result of India's robust recovery in the second half of 2009 and rising inflationary pressures, the Reserve Bank of India (RBI) and the Indian government are normalising monetary and fiscal policy conditions, it said.

In January, 2010, the RBI raised its cash reserve ratio by 75 basis points (to 5.75 per cent) to reduce excess liquidity in the banking system.

In March, it raised both the repo (lending) and reverse-repo (liquidity absorption) rates by 25 basis points. Subsequently, in April, it raised all three policy rates by an additional 25 basis points, the report said.