High fiscal deficit would not be sustainable for a long period
NEW DELHI: In a further reiteration of the caution expressed at the G-20 meetings earlier during the year, Finance Minister Pranab Mukherjee on Wednesday warned that immediate withdrawal of stimulus packages would lead to “collapse” of the world economy.
Recalling his interactions with Japanese Prime Minister Yukio Hatoyama on Tuesday at a Corporation Bank function here, Mr. Mukherjee said: 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.”
Explaining further when asked if that meant a staggered withdrawal, Mr. 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.”
Mr. Mukherjee said that he had conveyed to the Japanese Prime Minister that all countries have run up high fiscal deficits owing to the huge amounts of money released in stimulus packages to shore up their economies and the consequent high borrowings may leave scant resources for the private sector.
As for the Indian economy, Mr. Mukherjee conceded that the high fiscal deficit on account of the stimulus packages would not be sustainable for a long period and that he had set targets for fiscal deficit for 2010-11 and the following year to bring it down to four per cent by 2011-12. “We shall have to strike a balance between the requirement of the economy and also the capacity of the economy to bear this level of fiscal deficit,” he said.
Earlier, the Finance Minister gave away the ‘CorpExcel’ awards to 21 outstanding micro, small and medium enterprises (MSMEs) instituted by Corporation Bank.