Fiscal stimulus, divestment to continue; inflation not a worry

New Delhi, Nov 3 : Stating that inflation was not a cause of immediate concern, Finance Minister Pranab Mukherjee today laid out the agenda of the government for the future, including that the fiscal stimulus packages will continue until the Indian economy is solidly on the path of economic recovery, that the government will push ahead with the disinvestment programme and there was no intenition of putting curbs on capital flows.

Addressing the annual Economic Editors' Copnference here, Mr Mukherjee said the country was confident of attaining its medium-term fiscal targets.

Mr Mukherjee said the recent months have witnessed some clear signs of a turnaround in the growth rate and there was no dearth of liquidity in the economy, but insisted that inflation was not a pressing area of concern.

''It seems that the two worst quarters since the global financial meltdown in September 2008 are behind us.

''After visible signs of pick-up in industrial growth in the last few months, there are some indications that growth of core industries may have moderated in September 2009. Some uncertainties related to the revival of the global economy also remain. We cannot, therefore, afford to drop our guard,'' he said.

The Finance Minister said Indian economy was a vicitm of both adverse external and internal factors -- global financial crisis and consequent slowing down of the international economy with attendant effects on India's exports and the severe drought in some parts of the country.

Mr Mukherjee said the impact of the sub-normal Southwest monsoon was yet to be felt, though it is likely that the economy may fare better than the initial estimates of the decline in food production and agriculture GDP.

He said the low level of non-farm credit offtake was an area of concern.

''No doubt that credit offtake has been impacted to some extent by the vagaries of nature, but now an all-out effort is being made to ensure that credit offtake to the employment-generating sectors, especially agriculture, and micro and small enterprises, picks up.

Banks have been asked to take advantage of upcoming busy season and enhance credit flows,'' Mr Mukherjee said.

He was asked whether India would take the concerns of the global community and G-20 while executing an exit from fiscal stimulus packages after taking into account the Q2 and Q3 GDP figures, for the RBI in its monetary policy has indicated its intention of exiting from an accomodative monetary policy. The G-20 communique has enjoined upon nations not to exit from liberalised fiscal and monetary policies until the global economy has recovered.

In other words, the global community was coupled in crisis it must remain coupled in recovery.

Mr Mukherjee replied that there was no question of an exit from the fiscal stuimulus packages until the economy was clearly on a rebound, which is what he has also advised the international community.

He said while there are good reasons to believe that the immediate policy response to the global slowdown through a deliberate fiscal expansion may have been effective in moderating the decline in GDP growth, there were concerns on the medium-term prospects of the economy.

''Indeed, there is some anxiety about the sustainability of fiscal correction achieved since the institution of Fiscal Responsibility and Budget Management Act.'' Mr Mukherjee said the stimulus packages need to be continued, to allow its impact to fully run through the economy.

Nevertheless, it was imperative to come back to the path of fiscal prudence, as soon as the ''current economic circumstances permit us to do so.'' Talking about the cost of government's borrowing programme on its expenditure and consquent shrinkage of funds for the private sector, Mr Mukherjkee said these concerns were ''misplaced''.

''Notwithstanding the increased borrowings in the current year over the last fiscal, the cost of borrowing has been significantly lower so far.'' Mr Mukherjee said the government will be able to maintain its direct tax target, even though there was likely to be a slippage relating to indirect taxes, both excise and customs.

The Finance Minister said the government was on track to lower the deficit to 5.5 per cent in the next fiscal year when sixth pay commission arrears to government employees will have been paid out.

Stating that supply constraints are pushing up food prices, he, however, said that inflation was not yet a pressing area of concern.

--UNI

(c) 2009 Published with permission from United News of India.
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