The International Monetary Fund said on Monday reaching a deficit target for 2011-12 would be a more challenging task for the Indian government.
The government, which stepped up expenditure to battle economic slowdown after financial crisis, had to streamline and contain spending in key spending targets, Anoop Singh, director of Asia and Pacific at IMF, told reporters after interaction with the Reserve Bank of India.
The government has set target to bring down the fiscal deficit to 4.6 per cent of gross domestic product for 2011-12, down from the estimated 5.1 per cent for 2010-11.
In India, as in many other economies, fiscal policy can play a very helpful role in stabilising the economy and inflationary expectations.
The Budget for this year (2011-12), seeking further consolidation, would significantly help to address overheating and demand pressures, he said.
Referring to task to manage inflation, IMF said against backdrop of strong growth and signs of overheating, the need to tighten macroeconomic policy stances in Asia has become more pressing now than it was six months ago.
The Washington-based international funding agency said further monetary tightening was necessary in economies that were facing generalised inflation pressures, as interest rates remain generally below levels that are consistent with stable growth and low inflation.
In many cases, interest rates were still negative in real terms, IMF said.