Sustained strong growth could see withdrawal of stimulus next year

Sustained strong growth could see withdrawal of stimulus next year
The Hindu Business Line, December 5, 2009, Page 15

Our Bureau, New Delhi

Stimulus packages may be withdrawn as early as the next fiscal if the current GDP growth trends continue.

The impressive second quarter GDP growth rate of 7.9 per cent has given the Government enough confidence to consider withdrawing the stimulus packages next year.

Speaking on the sidelines of the International Chamber of Commerce's Regional CEO Forum, Dr C. Rangarajan, Chairman of the Prime Minister's Economic Advisory Council, said: “We have had a strong growth in Q2 and if this trend continues and we have a strong growth of around 7 per cent for 2009-10, then the Government can consider withdrawing the stimulus packages.” Dr Rangarajan said: “Some steps need to be taken to bring down the fiscal deficit. Some of the expenditures could be withdrawn and there may not be any need for some of the expenditures incurred in the current year.

“Revisions in excise duties and taxes are also not ruled out. But these are all issues that need to be discussed at the time of the formulation of the Budget. Right now it is necessary to put the process of fiscal consolidation in place.”

Regarding the role of monetary policy in curbing the food inflation, Dr Rangarajan said, “In a period of scarcity, if the money supply growth is very strong, it will fuel inflation. The Reserve Bank of India could take action on reducing liquidity after observing the prices in December.”

Earlier, in his address at the event, the Economic Advisory Council's Chairman said that India's GDP growth this year is expected to be around 7 per cent and should be between 7 and 8 per cent for the 2011-12 fiscal. “If the world economy and world trade recovers, then India can be back at the 9 per cent growth rate in another two years,” said Dr Rangarajan.