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Harsh truths

LiveMint logoLiveMint 12-05-2014 Livemint

The industrial recession continues. Consumer price inflation is still too high for comfort. And food prices have begun to accelerate amid growing worries about the impact of an El Nino on farm production this year.

The latest economic data released on Monday underlines the harsh truth that has been drowned out by the din on the campaign trail as well as the new wave of optimism in trading rooms. The Reserve Bank of India has absolutely no room to cut interest rates in the coming months, and central banks in several other emerging markets have been on guard against price pressures. All this is a reminder that the next government will take over an economy that continues to be trapped in stagflation.

There is now no case for either a fiscal or monetary stimulus. What India really needs is a reforms stimulus combined with a concerted attempt to get stalled projects back on track. Investors will at some point have to take these fundamental truths into account.

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