Attributing the current economic woes to stimulus provided by the government to tide over the global crisis of 2008, Reserve Bank of India Governor Raghuram Rajan has said it eventually led to an overheated economy, high inflation and uncomfortable fiscal and current account deficits.
Addressing investors at an Citibank event in New York, Dr. Rajan said the economy had slowed to below 5 per cent from an average of 8 per cent during 2002-12, mainly on account of domestic factors.
The slowdown was “largely a result of domestic factors (institutional weakness, withdrawal of stimulus) and one-third due to global factors,” Citi said in a release on Monday, quoting Dr. Rajan.
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“While the stimulus did help growth initially, it eventually led to an over-heated economy, high inflation/wage growth and consequently deficits widening to uncomfortable highs.’’
The then Finance Minister, Pranab Mukherjee, gave three stimulus packages to industry to combat the impact of global financial meltdown of 2008.