The withdrawal of economic stimulus packages by advanced countries like France, Germany and Great Britain may lead to double-digit recession, warned Prime Minister Manmohan Singh.
Without naming the troika, Prime Minister Singh said, “Contractionary policies, if followed by many industrialised countries simultaneously, could provoke a double-dip recession”. Addressing G-20 leaders of key emerging and advanced countries, Prime Minister Singh pointed to great risks in destabilising fragile recovery and deflation vis-à-vis inflation. He prescribed a measured and calibrated exit from stimulus measures by developed countries that face “fiscal stress” and deficits. For countries like the US, where the markets have been nervous, he prescribed fiscal consolidation as the way forward. The UK’s Tory-LibDem coalition government has already annou-nced an aggressive package of steep cuts in budget spending, mopping up fun-ds by taxing banking transactions and higher value added tax for industry.
Dr Singh’s caution against immediate withdrawal of stimulus spending assumes significance in the wake of the aggressive line proposed by German Chancellor Angela Merkel, who has begun mobilising support for austerity, budget cuts and higher taxes. French President Nicolas Sarkozy has been an ardent supporter of this aggressive and immediate cut in spending budget funds.
The US has adopted a different line altogether. The Congressional committee has recommended phased withdrawal of stimulus measures, new norms for commercial and investment banks coupled with mobilising $12 billion through a bank transaction tax. The US Congress is yet to give its final nod. Prime Minister Singh warned the developed countries from resorting to protectionist policies or imposing trade barriers with an adverse impact on revival in demand for goods and services in developing countries. He advised developing countries to “rebalance” their strategies to rely less on exports and shift to higher domestic consumption demand to tide over the crisis.
Dr Singh asked the developing economies to direct their energies and meagre resources to development of core areas.