Economists urge FM not to withdraw stimulus

Pranab Mukherjee at the pre-budget meeting with economists, in New Delhi on Friday

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SME Times News Bureau | 16 Jan, 2010
Economists Friday suggested to Finance Minister Pranab Mukherjee that the fiscal stimulus measures given to the industry to combat the effects of global economic slowdown should continue as the economic recovery was still fragile.

"It is not the time to withdraw the stimulus. It is the general feeling of the economists," Nitin Desai, former chief economic advisor, told reporters after a pre-budget discussion between economists and the finance minister here.

The suggestion comes when the government is considering withdrawing fiscal stimulus as industrial output and exports have begun picking up in recent months.

Partha Sen of Delhi University's School of Economics, who was present at the meeting, said stimulus measures should not be withdrawn in a hurry as it would affect the economy, which was still not fully out of the red.

The government had pumped in over Rs.1.86 lakh crore in the domestic market between October 2008 and January 2009 in the form of duty cuts and other concessions for various ailing sectors to boost the economy following the global meltdown.

The stimulus package is 3.5 percent of the country's gross domestic product (GDP).

India's central bank, the Reserve Bank of India (RBI), will review its quarterly monetary policy Jan 29 and is expected to raise the cash reserve ratio, the minimum reserves that banks are required to maintain by way of customer deposits and notes.

India's industrial output grew at its fastest pace in two years in November, strengthening the case for the RBI to tighten its monetary policy later this month to temper inflation expectations.

Also, the fiscal deficit is expected to be at 6.8 percent of the GDP in the current financial year, the highest in 16 years. The government's borrowing is also at a high Rs.4.51 lakh crore.