India’s central bank warned yesterday that inflation would rise to 5% by March and told the newly elected government it must rein in public spending in the years ahead.

In the Reserve Bank of India’s first-quarter review of monetary policy, Duvvuri Subbarao, governor, said the government had to explain how the public finances would return to a stronger footing. His call came after the fiscal deficit was raised to 6.8% of gross domestic product.

The planned rise in spending is aimed at returning India to the high levels of economic growth it enjoyed before the global financial crisis. Economists are concerned the government will struggle to curb spending once the fiscal stance is relaxed and have warned of the consequences of higher public borrowing.

Financial Times