Care should be taken while withdrawing stimulus: Pranab

Exuding confidence that the economy would grow between 6 to 7 per cent this fiscal, the government on Saturday said care will have to be taken while withdrawing the stimulus package given to spur demand.

While an early exit from stimulus measures may hamper nascent economic recovery, keeping these in place for long may overheat the economy, Finance Minister Pranab Mukherjee told reporters on the sidelines of a function here.

“It is prudent to remember that despite the initial successes, risks remain,” he said.

Policy makers would have to tread carefully and balance the risks of withdrawing policy support too early, which might cut short a nascent recovery, against the risks of leaving expansionary policies in place for too long that could overheat the economy, he said.

Overheating happens when demand in the economy exceeds supply, leading to a host of problems, including inflation and asset bubbles. Stimulus measures are meant to generate demand in the economy, hit by the global economic downturn.

Mr. Mukherjee also said economic growth is expected to be in the range of 6 to 7 per cent during 2009-10, despite the setbacks due to a delayed monsoon and floods.

The finance minister’s remarks came two days ahead of second quarter release of GDP data on Monday. The Indian economy grew by 6.1 per cent in the first quarter, from 5.8 per cent in the preceding two quarters, which he called as start of the recovery.