No need for haste in withdrawal of stimulus, says Montek

NEW DELHI: India's fiscal deficit will not stand out as an 'egregious' case of overspending when compared to that of the US and the UK, Planning Commission Deputy Chairman Montek Singh Ahluwalia has said, adding that the decision to unwind the stimulus measures of the past year would be a difficult one to make.

“There are economists, including Stiglitz and Krugman, who have been warning that a premature withdrawal of stimulus will lead to the loss of gains already made,” Mr Ahluwalia said, speaking at a seminar on global economic crisis organised by Ficci on Monday.

He said determining the pace at which the fiscal stimulus should be withdrawn was a difficult issue the government would have to face in the coming months while finalising the Union Budget for 2010-11.

The country’s fiscal deficit is estimated at 6.8 per cent for 2009-10, against 6.2 per cent in the previous fiscal. The deputy chairman pointed out that while it was important to check the widening fiscal deficit, the fact that India’s figures were not higher than that of some of the developed countries helped to put things in perspective.

"India’s fiscal deficit is lower than that of the US and the UK. In fact, the US’ debt to GDP ratio is also higher than that of India," Mr Ahluwalia said.

On inflation, he said food inflation is likely to come down from a high of near 20 per cent by next month, as the impact of the drought on the economy was easing.

Noted economist and professor emeritus, University of Warwick, Robert Skidelsky underscored the relevance of Keynesianism— an economic theory of British economist John Maynard Keynes, highlighting the importance of active government intervention to ensure economic growth and stability—in fighting slowdown.

“Governments the world over handed out stimulus packages to stop the slide into depression,” he said, pointing out that it was in marked contrast to what happened during the Great Depression and testified to the enduring power of Keynes’s commonsense’’.