Finance Minister Pranab Mukherjee, on Tuesday, barely a day-and-a-half into the office, has announced, in a TV interview, that the government is ready and willing to consider another fiscal stimulus package favourably, but, considering that there may be much criticism of such an approach, he has added that prudence will be maintained in taking any such measures. He said, "A stimulus is needed for encouraging growth, but fiscal profligacy must be avoided."
The Indian economy has been the beneficiary of two fiscal stimulus packages in December 2008 and January 2009 aside from the monetary measures like interest rate and cash reserve ratio cuts implemented by the Reserve Bank of India (RBI), which has led the its governor D. Subbarao to say that such measures should not be necessary any longer to prod the economy on the path to recovery.
While the Indian stimulus packages have been dwarfed by the ones unleashed by the US, Europe and even China, involving trillions of dollars, but that is because India was less affected by the global meltdown than these countries for a variety of reasons. Recovery is still a huge question mark there, while in India there are signs of the economy getting back to a healthier condition.
Yet the UPA government is going in the exact opposite direction, despite the RBI governor saying that most probably the recovery will be seen taking effect at the end of this year itself. While, according to the RBI, the there is ample liquidity in the system and corporate India is not being put to too much trouble in sourcing funds, the government's rush to adopt the borrow-and-spend policy will hike the deficit to unreasonable heights.
Up front in the pipeline are government borrowing to the extent of Rs 48,000 crore. While much of the money may get funneled into the infrastructure and othger productive areas, yet much of the funds raised will end up on the social change, inclusive, agenda. In the run-up to the elections the Congress party had promised it would raise wages under the National Rural Employment Guarantee scheme, aside from ramping up expenditure on health and ensure free food reaches the extremely poor.
According to most economists, growth may get back on track seeing as to how certain sectors are showing signs of revival like cement, steel production, automobile sector and they insist that even industrial and business outlook is improving -- check out the Bharti Airtel-MTN merger talks, more and more corporate heads saying the situation is improving, especially after the poeple of India gave such a resounding victory to one political alliance thereby strengthening its hands considerably, and the stock markets going on a two-month gaining streak.
While growth is going to be hit, but that is because of the past 12-to-18, months of the global financial crisis. India's growth has been pegged at around 6 per cent, which is not too great a fall from the lofty heights of 9 per cent achieved in years previous 2008-09, but it most certainly will involve a lot of pain as the fall in growth levels will ensure that not enough jobs are created for the burgeoning population of young people entering the age of gainful employment.
Whether a stimulus is needed or not should not turn out just a plain politically expedient policy makeover, it must involve authorities on the subject who can give a holistic outlook, rather a myopic vision.