Govt must step up spending to minimise war impact: Experts

New Delhi, Oct 14: Expressing similar views that ongoing US-led war on Afghanistan would impact the capital inflows in the short-term, some of the leading economists said that the Union government must step up its expenditure to minimise the impact of war on Indian economy.

“Government should put in investment without worrying about the fiscal deficit to increase at least for the time being,” Director, Research and Information System (RIS) for Non-Aligned countries, Professor VR Panchamukhi said.

In the short-term gold and oil prices may shoot up due to psychological reasons, but the sluggish period should not last too long or more than six months, Mr Panchamukhi said on the possible impact of recent war on the domestic economy.

Echoing similar sentiments Professor BB Bhattacharya of Institute of Economic Growth said government will have to divert its attention towards increasing spending to fuel the economy.

He said prolonged conflict would affect the country’s economy badly, which was unlikely to see capital inflows for some time. In case the US-led war remains specific to Afghanistan and does not spread to other Arab countries, the overall impact may not be too big.

Earlier, the Delhi base think-tank had said that in case the war prolonged and spread to other areas, the foreign exchange market could be affected adversely and the rupee may touch the value of Rs 52 against a dollar by March 2002.

Oil and gold prices are also likely to take a northward journey, Prof Bhattacharya added.

A leading economist with National Council for Applied Economic Research, Mr Shashank Bhide said the confilct would cast its shadow on the capital inflows into the country.

With uncertainty on account of strikes and fear of conflict spreading further in the continent gripping people, both short-term and long-term investments would be put on hold.

Prof Bhattacharya said the ongoing conflict would exert pressure on Rupee and there by the foreign exchange situation of the country.
However, the economists also managed to see a silverlining in the war clouds.

“With the US government promising to pump in money to pep up their economy, the global economy and henceforth Indian economy would witness some spinoff effect,” Prof Bhattacharya said. Voicing almost similar opinion, Prof Panchmukhi said, war expenditure by other nations would have some positive impact on the economy.

— PTI