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Wednesday, December 30, 2009

India cautions against hasty withdrawal of stimulus packages

India has cautioned against immediate withdrawal of stimulus packages by the governments as it may lead to "collapse" of the world economy.

"Immediately coming out of the stimulus package... Exit policy may not be the correct approach because in that case if the world economy collapses the depression would be deeper," Finance Minister Pranab Mukherjee said today at a Corporation Bank function while recalling his interactions with Japanese Prime Minister Yukio Hatoyama yesterday.

Later, when asked if he was hinting at gradual withdrawal of stimulus packages, Mukherjee said, "I am not hinting at anything. What I told (Japanese Prime Minister) was that we shall have to strike a balance between the requirement of the economy and the capacity of the economy to bear this level of fiscal deficit and borrowing."

The Finance Minister said that he has told Japanese Prime Minister that countries have spent huge amount of money in stimulus packages to help the economies which has resulted in high fiscal deficit in almost every country and also greater borrowing which have propensity to leave little resources to the private sector.

On the Indian economy, he said that stimulus packages are projected to widen the fiscal deficit to 6.8 of the gross domestic product this fiscal. He reiterated that this kind of fiscal deficit cannot be sustained for a longer period.

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