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Sunday, September 8, 2013


Guwahati, Sunday, December 06, 2009

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India must increase revenue to contain fiscal deficit

A stimulus package is an attempt by the government to boost the economic growth. The fiscal and monetary are the two main ways for stimulating the economy.

So far not a single Indian bank or financial institutions have failed and all of them well regulated by the RBI. Rather than come out with a new stimulus plan government should decide on the rollback of stimulus once the economy returns to the path to recovery.

The three stimulus packages implemented between December 2008 and February 2009 to revive the economy has already created fiscal deficits. The government had cut taxes and hiked expenditure to stimulate the economy following the global financial crisis. The fiscal deficit is the difference between the government’s total expenditure and its total receipts (excluding borrowing).

There are two ways government can reduced fiscal deficit, by raising revenues or by reducing expenditure. However keeping in view of the present economic situation the government has not increased revenues. Government expenditure in sectors such as agriculture, education, health and poverty alleviation has been reduced leading to greater hardship for the poor. So, more economic stimulate packages mean increase the fiscal deficit when the economy going through a recession and more importantly the government has not been able to play any role in boosting demand. Government should have ruled out any further special packages to stimulate the economy and should have adopted exit strategy because now the time ripe to end the stimulus.

Will the Indian economy be able to manage if stimulus measures are withdrawn to bring down the current level of fiscal and revenues deficits? Before withdraw government needs to focus on rural agricultural policies which can infuse faster economic growth, investment in infrastructure and maintain an appropriate fiscal and monetary policy. Both Government and Reserve Bank of India should working in close cooperation with each other to evolve the appropriate fiscal and monetary policy. Even the global leaders should address the problems faced by the international community due to economic meltdown in the platform like G-20 so that the multilateral negotiations on trade can be successfully concluded.

Markets have begun looking up this quarter and the growth forecast also returned to positive. Some economists pointed should continue another 4-6 months in stead of withdrawing stimulus packages. The turbulent period of the Indian economy is going on right now and initiating any negative step can derail the whole process of recovery. India’s Planning Commission Deputy Chairman Montek Singh Ahluwalia told that Indian economy, which is grow at its slowest pace in six years in the fiscal year ending March, needs stimulus to sustain growth.

India is becoming a global innovator for high-tech products and services. As per the World Bank report two per cent of India’s population, 20 million people, staying abroad earn the equivalent of two-third of India’s GDP. Indian Government should seek policies that stimulate the employment market mostly revolve around measures being implemented at the national and international level to tackle problem of job losses arising out of recession.

The crisis is forcing India around the world to test the limits of fiscal and monetary policies. To navigating these uncertain times a sound and resilient banking sector, well-functioning financial markets and robust liquidity management are the pre-requisites for financial stability. The banking system in India is sound, adequately capitalized, well regulated and capable of withstanding the global shock without any further stimulus packages.


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