Amid speculation of the government withdrawing stimulus, Prime Minister’s Economic Advisory Council Chairman C. Rangarajan on Friday said the exit measures must be gradual.
“It (exit measures) should be calibrated in a manner that stimulus in the economy should continue...at the same time, some adjustments will be made (to bring down fiscal deficit),” Dr. Rangarajan told reporters when asked about the possibilities of the government withdrawing stimulus measures.
Fiscal deficit for the current financial year is pegged at 6.8 per cent of the gross domestic product (GDP) as against 6.2 per cent in the previous fiscal, as a result of a slew of stimulus measures the Centre announced since the breakout of the global economic crisis late 2008 triggered by the collapse of U.S. investment banking giant Lehman Brothers in September 2008.
The stimulus withdrawal should be gradual, systematic and in a calibrated manner so as not to hurt the economic recovery, the former RBI governor said.
“The process of exit (from the fiscal stimulus) must be gradual, coordinated and must not be sudden...it should not disrupt the economy,” Dr. Rangarajan said.
In concert with the government measures to boost the economy, the RBI also relaxed its monetary stance to battle the financial crisis. It slashed cash reserve ratio and key policy rates several times since October 2008 before hiking the CRR last month.
Dr. Rangarajan, delivering a lecture earlier in the day, said the regulatory framework should cover all segments of the financial markets systemically, and warned that excessive regulation could impede financial innovations.
Therefore, policymakers must strike a balance between innovation and regulation to ensure stability.
