Finance Minister Pranab Mukherjee on Tuesday made it clear that the timing of withdrawal of the fiscal stimulus measures would hinge on a robust recovery in the global economy as till then, the support measures would have to continue to spur domestic demand.

Addressing global CEOs and domestic industry leaders at the India Economic Summit here, Mr. Mukherjee said: “Umpteen number of times I have stated that in due course we shall have to take corrective measures [phase out fiscal stimulus]. But still, I do feel that strong domestic demand is necessary... it [support measures] will continue for some more time.”

Mr. Mukherjee’s categorical statement — coming as it did two days after Prime Minister Manmohan Singh announced in his inaugural address at the Summit that fiscal support would be phased out next year — is not to be viewed as a contradiction. Ostensibly, the government is expecting global economic recovery to be firmly rooted during the course of calendar year 2010.

The Finance Minister’s participation in the three-day summit, organised by the World Economic Forum (WEF) and the Confederation of Indian Industry (CII), was shelved by a day to await his return from the G-20 meeting in Scotland, where finance ministers had assembled to thrash out a strategy to time the exit of global stimulus packages worth trillions of dollars. Even as the stimulus initiatives taken by the government and the Reserve Bank of India (RBI) by way of cut in taxes and interest rates have pushed up the Centre’s fiscal deficit to 6.8 per cent of the GDP (gross domestic product), Mr. Mukherjee pointed out that return to fiscal consolidation was on the agenda as announced by the Prime Minister. However, till a robust recovery “takes place in developed countries, the support will have to continue as a sizable portion of India’s $185 billion exports go to the western markets,” he said.

Responding to questions on the issue of tax evasion, Mr. Mukherjee said India would start negotiations with all 77 countries for revising the double tax avoidance treaties. On the recent G-20 meeting in Scotland, Mr. Mukherjee said his emphasis was that protectionism was not an answer to the global economic meltdown as the problem had to be sorted out in the spirit of collectivism and cooperation.

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