ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Tepid Stimulus

Even during a time of crisis the UPA government cannot break free of the mindset of fiscal fundamentalism.

It has been three months since the global financial turmoil e xploded into a full-blown crisis with a definite impact on the real economy. The government of India has now finally come out with a fiscal stimulus plan to prop up a slowing economy. The government (acting through the Reserve Bank of India) has certainly not been quiet. A number of policy decisions have been taken in the past months to calm financial markets and boost confidence. But these have been mainly in the field of monetary policy and unfortunately they do not seem to have had any major impact.

In the fiscal area itself, the United Progressive Alliance (UPA) government seems unsure of the size of the challenge and the scale of the response required. Just over a month ago, Prime M inister Manmohan Singh, who currently also holds the finance portfolio, observed that the Union Budget for 2008-09, which had generous tax breaks and a measure of higher Plan spending, anticipated the global crisis with an in-built fiscal stimulus. H owever, we know that the economy has not given much of an acknowledgement to this stimulus plan of foresight. All indicators – such as capital investment, export growth and industrial e xpansion – have shown a plunge in the past two to three months.

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