Is it time to bid adieu?

As the government finalises the taxation and expenditure proposals for the forthcoming budget, news is rife that the government may exit from the stimulus measures introduced last year to revive growth. In the absence of an exit strategy in an economy flush with liquidity, there could be fresh macroeconomic challenges that could derail the economic recovery underway. And in all sanity no government would like to be targeted for reversing the growth trajectory. However, the billion dollar question, “is it the right time to exit?” is worth pondering over. “Too much of stimulus, when the body is getting healthy, is not good, it can be injurious to health,” says the Finance Secretary, Ashok Chawla. Given the ‘twin fears’ of inflation and budget deficit, the statement gains significance as it could mean withdrawal of fiscal concessions given to industries to overcome the financial crisis. Nevertheless, there are others who believe that withdrawing medication when the patient is still on the path of recovery could prove fatal. They argue that while the government can stop giving other stimulants, especially those designed to help the private sector; it necessarily needs to step up employment by giving concessions to the small scale industries. The strategy therefore should be carefully crafted to ensure that the adjustment does not harm the green shoots of growth and hamper the recovery process.

Gyanendra Kashyap

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Source : IIPM Editorial, 2010.

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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