Stimulus may end by December: FM

Govt expects growth rate to touch 9 per cent in two years

The government expects growth to pick up to around 9 per cent in the next two years. The country grew by over 9 per cent for three consecutive years till 2007-08.

The Reserve Bank has already taken the first step to exit the easy monetary policy stance adopted last year to insulate the economy from shocks of the global financial meltdown.

“I think I shall have to watch situation for the progress in the second quarter and third quarter. Perhaps, I may be in a position, I am not asserting that position, to articulate it (exit strategy), sometimes when the D-day will come,” Mukherjee said at the Hindustan Times Leadership Summit here.

Although exit from fiscal stimulus is a sign of recovery, he said reforms, including in labour and financial sectors, are key to returning to 9 per cent growth.

“We don’t have the required majority in the two houses of parliament to clear the bills... a broad political consensus is needed,” Mukherjee said.

Prime Minister Manmohan Singh separately told the summit that his government would push forward reforms. “We need to push forward the reforms process in the areas you have mentioned and we will do so,” Singh said replying to a question by Rajya Sabha MP N K Singh on stalled reforms in labour, insurance and the financial sector. In its fiscal stimulus measures to perk up the slowing down economy, the government cut excise duty by 6 per cent, service tax by 2 per cent in phases and increased planned expenditure. The economy grew by 6.1 per cent in the first quarter of this fiscal. The numbers for the second quarter are expected by November-end and that of the third quarter by February-end.

From next fiscal, Goods and Services Tax (GST) is expected to be introduced, which would make a broad comment on whether stimulus is withdrawn or not. However, Mukherjee said he would not be surprised, if GST implementation is delayed by a few months.

Mukherjee said he would share his perception on exit strategy at the G-20 Finance Ministers’ meeting in Scotland, starting from November 6 2009. “Next week, I am going to share my perception what should be the exit policy in G-20 Finance Ministers meeting in Scotland, just next Saturday,” he said. He said instead of blanket exit strategy for all nations, each country should devise their own plans depending on their economic situation. Stressing on fiscal consolidation, he said the target must be to “bring back fiscal deficit within prudent limits.”

India’s fiscal deficit stands at around 6.8 per cent now and the government wants to contain it to 5.5 per cent. On exports growth, Mukherjee said they are not likely to recover in the next two-three years unless the developed market show strong recovery.