New Delhi: Prime Minister Manmohan Singh on Sunday ended the suspense over continuation of fiscal stimulus, stating it would be phased out next year and promised a decisive change in the pace of reforms, mainly in the financial sector.
“Like other countries we resorted to a significant stimulus and we will take appropriate action next year to wind this down,” he said at the 25th India Economic Summit here.
With signs of global recovery, a worldwide debate is on about whether or not to continue with the life-supporting packages running into trillions of dollars. India’s fiscal and monetary sops are estimated at 3.5% of the GDP and led to ballooning of fiscal deficit to over 6%.
Addressing global CEOs and captains of industry, the Prime Minister, however, gave them a morale booster and promised a “decisive change” in the pace of economic progress.
“In the coming months and years, I hope to see a decisive change in the pace of our progress to becoming a leading economy in the world,” he said.
After unveiling a bold PSU sell off plan last week, Singh, who as finance minister in the 90s initiated liberalisation, said that his government is better placed now to unleash reforms particularly in the financial sector.
“We are also better placed than any time in the recent past to push the reform process forward... We need to ensure that financial system can provide the finance needed for our development... This opens up a broad agenda for reforms,” he said.
While Prime Minister gave a clear signal on winding down the fiscal stimulus, Planning Commission deputy chairman Montek Singh Ahluwalia said it would depend on the level of inflation and growth.
“Winding down stimulus next fiscal means reducing fiscal deficit. You have to see how fiscal deficit is reduced,” Ahluwalia said.
But commerce and industry minister Anand Sharma was more forthcoming in opposing the withdrawal.
“Let’s not forget that the recovery in the global context is stimulus dependent. It is premature to think of withdrawing or going in for exit strategy,” Sharma said.
Last week finance minister Pranab Mukherjee, too, had stated “for the present ... the fiscal stimulus will have to continue, to allow its impact to fully through the economy..”
The Prime Minister said that in the last 25-years, since the annual Indian Economic Summit began here, India has substantially delivered in terms of reduction of poverty, hunger and disease.
However, much more needs to be done and the strategy of the government would be not just to deliver rapid growth but also to ensure that its benefits percolate down.
He said India had put out a resilience to the global economic downturn and managed to grow by 6.7% in 2008-09. Despite inadequate rainfall and its impact on agriculture, the economy is expected to expand by 6.5% this year and over seven per cent next year, Singh said.
Given the domestic saving rates of 35% of GDP, achieving 9% annual growth in the medium term is “eminently a feasible target”.
Essentially India seeks to grow on domestic demand to be mainly triggered by both public and private investments in infrastructure sector.
The government has an ambitious investment programme in key infrastructure sectors like power, roads, ports, airports, telecom, irrigation and urban amenities.
It has projected over $500 billion investment for the development of infrastructure. As much as $80 billion required for roads and another $60 billion in the power sector in the next 3-4 years.