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Tuesday, February 23, 2010

Govt to withdraw stimulus after assessing impact on recovery

The government today said it would withdraw the stimulus package only after assessing its impact on the economic recovery.

The decision on the rollback of fiscal stimulus measures, including the nature, pace and sequence would be based on the emerging economic situation and after careful consideration of the impact of the same on the recovery process," the Minister of State for Finance Namo Narain Meena said in a written reply to the Rajya Sabha.

The Finance Ministry's statement comes in the backdrop of the ongoing debate on whether or not to roll back the sops given to the industry during the slowdown.

While the industry wants the stimulus package to continue, experts feel since the economy is back of the growth path it is time the stimulus was phased out partially. The economy is expected to grow by over 8 per cent during 2010-11.

Meena, too, in reply to other questions said, "The expansionary fiscal stance is a short-term measure to address demand slowdown in the economy and to minimise the adverse impact of the global financial crisis."

"Once the adverse impact of the global shocks on the Indian economy is overcome, the process of fiscal consolidation would resume," he added.

Meena further said monitoring the emerging macroeconomic situation and calibrating policies to mitigate the adverse impact and restore growth momentum is an ongoing process. The stimulus measures announced by the government in three tranches in December 2008 and then in January and February 2009 were both sector specific and macro economy wide in nature, he said.

Some of the key sectors for which specific measures were put in place include exports, especially textiles, leather and gems and jewellery; medium, small and micro enterprises; infrastructure and housing, the Minister added.

The budget for 2009-10 presented on July 6, 2009, envisaged a continuance of the process of fiscal expansion and the fiscal deficit was placed at Rs 4,00,996 crore for the full year (amounting to 6.8 per cent of the GDP).

The medium-term fiscal policy statement presented to Parliament along with the budget for 2009-10 estimates that the Centre's fiscal deficit would decline to 5.5 per cent of the GDP in 2010-11 and further to 4.0 per cent of the GDP in 2011-12.

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