India asks G-20 members not to exit stimulus at one go

M
Busan, June 5 (PTI) India on Saturday cautioned G-20
nations against rushing to withdraw stimulus measures,
although many countries were seeing the worrying trend of
expenditure far outstripping income.
India's Finance Minister Pranab Mukherjee, who initiated
gradual roll back of stimulus measures back home in the Budget
for 2010-11, said that withdrawal of fiscal and monetary
props, all at the same time, could derail the fragile economic
recovery.
"The market is sending strong signals that the fiscal
situation is a matter of concern...we should all not rush to
fiscal (stimuli) exit at the same time so as not to undermine
the recovery...," he said at the G-20 Finance Ministers meet
here.
India had unveiled a number of fiscal and monetary sops
to insulate the domestic industry in the wake of the 2008
global financial crisis, but rolled back some of them such as
excise duty cuts after the economy posted healthy growth.
The economy expanded by 7.4 per cent in 2009-10 from 6.7
per cent in 2008-09, the year that bore the brunt of the
global crisis. India's fiscal deficit is pegged at a high 5.5
per cent of GDP this fiscal, but the government hopes to
reduce it to 4.5 per cent in 2011-12 and 4.1 per cent in
2012-13.
High fiscal deficit makes borrowings costlier for the
industry and in turn impact their investments -- key to
economic growth -- at a time when public spending itself is
strained because of poor government finances.
"Those countries that have market compulsions may need
start the consolidation now. Others can stagger in fiscal
consolidation. It is critical, however, to clearly lay down
credible and transparent fiscal consolidation paths,"
Mukherjee said at the meeting called to discuss the global
financial crisis and ways to regulate financial institutions.
The Reserve Bank of India too has signalled exit from
monetary stimulus and has raised key policy rates twice this
year to put the lid on inflation.
Mukherjee also warned the countries that they should
exit from stimulus before the markets started forcing them on
account of deterioration in fiscal conditions.
"And, we need to act before the market forces us to do
so. I may point out that fiscal deterioration is a natural
corollary of deep and protracted recessions and downturns as
governments try to stimulate the economy back to their true
potential," he said.
This entails ceding some control to markets that have to
fund the high deficits. Fiscal consolidation is a natural
corollary of the recovery process, as countries can only grow
their way out of high levels of public debt, he said. MORE PTI
IND
MRD


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