Rangarajan makes strong case for stimulus withdrawal

Recommendations in line with those of top officials like Montek Singh Ahluwalia, Ashok Chawla and Anand Sharma

A day after advanced estimates by the Central Statistical Organisation pegged growth at 7.2 per cent for 2009-10, Prime Minister’s Economic Advisory Council (PMEAC) Chairman C Rangarajan today made a strong case for withdrawal of fiscal measures by the government to stimulate the economy.

Rangarajan’s recommendations are in line with those of top officials like Planning Commission Deputy Chairman Montek Singh Ahluwalia, Finance Secretary Ashok Chawla and Commerce and Industry Minister Anand Sharma, who suggested fiscal consolidation in the General Budget, to be presented on February 26.

“A 7.2 per cent growth rate (projected by CSO) for the current financial year indicates that growth impulses are strong. Process of fiscal consolidation must start and some steps can be taken in the Budget,” Rangarajan told reporters at a book launch organised by the Indian Council for Research on International Economic Relations (Icrier).

Suggestions for beginning the process of fiscal consolidation came from other quarters as well. Chief economics commentator for the London-based Financial Times, Martin Wolf, also emphasised that India should start fiscal consolidation and lower its deficit and debt levels.

“To recover and grow, it is essential for India to have fiscal room to manoeuvre accordingly…moreover, India should more and more focus on the domestic market economy as the trade is more or less satisfactory as of now,” Wolf said.

He applauded the Reserve Bank of India’s regulation and handling of the global economic crisis, stating that “what India has done has worked and it should do more of it”. However, he said that central banks over the world should move away from a monetary policy which exclusively targets inflation.