Pranab cautions against immediate withdrawal of stimulus packages

Even though a lot of world economies are showing signs of revival,world leaders should not rush to withdraw stimulus packages. An immediate withdrawal may lead to “collapse” of the world economy,cautioned finance minister Pranab Mukherjee today at a Corporation Bank function.

“World leaders have realised that business cannot be carried out as usual. While an immediate exit may would not be a correct approach,too late exit can lead to high fiscal deficit,” the finance minister said. Later,when asked if he was hinting at gradual withdrawal of stimulus packages,Mukherjee said,“We shall have to strike a balance between the requirement of the economy and the capacity of the economy to bear this level of fiscal deficit and borrowing.”

The finance minister said that he has told Japanese Prime Minister that countries have spent huge amount of money in stimulus packages to help the economies which has resulted in high fiscal deficit in almost every country and also greater borrowing which have propensity to leave little resources to the private sector.

On the Indian economy,he said that the economy was able to clock a growth rate of 6.7 per cent in fiscal 2009 largely due to large stimulus packages doled out to prop up demand. This has led to huge fiscal deficit that is now projected to widen to 6.8 of GDP by the end of this financial year. “This kind of fiscal deficit cannot be sustained for a longer period,” Mukherjee said.