The Asian Development Bank (ADB) has said that even as India is poised for a strong recovery this year, policymakers should address the rising inflation and the widening fiscal deficit to insulate the economy against similar global shocks in future.

In its study titled ‘Impact and policy responses-India’, the Manila-based multilateral lending agency said that the Indian economy had emerged from the crisis relatively unscathed and quickly regained growth momentum, thanks to its own stimulus actions, past reforms, banks’ limited exposure to troubled parts of the global financial system, as well as the nation’s robust domestic consumption.

The study, prepared by the Centennial Group International, noted that India’s gross domestic product (GDP) in the third quarter of 2009 grew a robust 7.9 per cent from the year earlier, and consumer confidence also rose strongly, while indicators such as the OECD Lead Indicator on growth and the Dun and Bradstreet Business Optimism Index for India have been trending up.

Alongside, however, the ADB cautioned that while India’s economy “is poised for a solid recovery in 2010 as the global financial crisis fades, but policymakers need to address inflation and the widening fiscal deficit to buffer it against the impact of future global shocks”.

Stressing that subsidies need to be streamlined or replaced by more targeted measures, the Bank said a “new fiscal management framework should rectify shortcomings of the Fiscal Responsibility and Budget Management Act (FRMBA) of 2003.” India, it said, should provide fast acting social “stabilisers” to help the poor, which would help in building greater resilience to withstand future crisis.

As for the economies in Asia as a whole, the ADB said that the exit strategies for fiscal stimulus packages should be carefully timed as the region is leading the global recovery. ADB President Haruhiko Kuroda said in a statement.

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