Withdraw stimulus packages slowly, says Rangarajan

RBI to guard re-emergence of inflation

“There should, however, not be a premature withdrawal and the RBI has to guard against re-emergence of inflation,” Chairman of the Prime Minister’s Economic Advisory Council C Rangarajan said today in his address to a two-day seminar on ‘International Financial Crisis and Its Impact on India’.

The former Governor of RBI said India would see “definite signs of recovery” in the second half of 2009-10. On growth forecast, he said this fiscal will see a rate of 6 and 6.5 per cent, but it will be higher next fiscal.

“Fiscal 2010-11 will see a distinct improvement in growth and economy will grow between 7 and 8 per cent. To go back to 9 per cent growth, we have to wait for the world economy to improve and world trade to pick up,” Rangarajan added.

On whether the fiscal stimulus have been helpful to the economy in increasing demand, he said, it would finally depend on whether or not the additional expenditures planned were actually incurred.

“Also, we need to look at the composition of expenditure and effectiveness of expenditures. Digging holes and filling them up is not a right prescription,” he observed.  On foreign capital inflows into the country, the EAC chairman said there was a reversal in trend in the last three to four months after the inflows shrank to just 9.1 billion US$ in 2008-09 from 108 billion US$ in 2007-08.

“The flow of portfolio capital turned negative, so too was trade credit. Things are changing now but they are not going to be of the same order as earlier,” Rangarajan pointed out.

Andhra Pradesh Chief Minister K Rosaiah, in his address said, despite the economic slowdown, the state government was able to carry on with its welfare and development programmes with massive investments, thanks to its “disciplined financial management” in the last five years.