India takes excess liquidity out to control inflation – can it fall into the trap of recession?
Babu Ghanta
Apr. 29, 2008

Finance Minister P Chidambaram announced substantial cuts in import duty on steel and many other products, while taxing exports of the alloy, at a net cost of Rs 1,500 crore to the exchequer.

RBI hiked CRR, the percentage of cash banks must hold in reserve, by 0.25 per cent to suck out over Rs 9,000 crore liquidity.

India in essence took out the excess liquidity from the system to control inflation. The finance minister of India Chidambaram says, “…the food situation has improved in the last two-three weeks. Let us see how these measures come together tend impact inflation.”

While India fights inflation, it is also creating the foundation of deep recession. Some economic think tanks believe India will eventually race towards a recession and possible depression due to shortage of water, higher crude oil price and lack of demand from US and Europe.

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