Exit from stimuli is risky, says FM

While an early exit from stimulus measures may hamper nascent economic recovery, keeping these in place for long may overheat the economy, Finance Minister Pranab Mukherjee said while delivering the Haksar Memorial lecture on ‘Asian Economy after the Financial Crisis: An Overview’ here. “It is prudent to remember that despite the initial successes, risks remain,” he said.

Policy makers would have to tread carefully and balance the risks of withdrawing policy support too early, he said.

Host of problems

Overheating happens when demand in the economy exceeds supply, leading to a host of problems, including inflation and asset bubbles. Stimulus measures are meant to generate demand in the economy, hit by the global economic downturn. Mukherjee also said economic growth is expected to be in the range of 6 to 7 per cent during 2009-10, despite the setbacks due to a delayed monsoon and floods.

The finance minister’s remarks came two days ahead of second quarter release of GDP data —— on Monday. The Indian economy grew by 6.1 per cent in the first quarter, from 5.8 per cent in the preceding two quarters, which he called as start of the recovery.

Mukherjee said that the effort now is to bring the economy back on the growth path of 9 per cent per annum at the earliest.