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: What was the size of India’s stimulus package after September 2008? It is impossible to give a clear answer. IMF documents mention a fiscal stimulus of 0.5% (or 0.6%) of GDP for calendar years 2008 and 2009, after stating that “headline” fiscal numbers are higher. PM and FM have talked about 3.5% or even 4% of GDP. The difference is due to definitions of the fiscal package. Do we only include what happened after September 2008 or do we include public expenditure through flagship programmes, National Rural Employment Guarantee Scheme (NREGS), farmers’ debt relief and 6th Pay Commission for government employees, all of which pre-dated September 2008? The three fiscal packages introduced between December 2008 and February 2009 are insignificant in comparison. There are no firm figures on the size of fiscal multiplier in India, though it should be lower than that in developed countries. The point is that 6.7% growth in 2008-09 looked respectable because of 7.8% and 7.7% in Q1 and Q2. Q1 of 2009-10 shows 6.1%. That’s the kind of trend we are on in 2009-10, around 6%. Despite so-called green shoots, there is no evidence of private consumption or investment expenditure having recovered. And till August 2009, the last month for which we have data, exports show no sign of revival. Growth prospects remain low, not significantly above the 5.8% in Q3 and Q4 of last year.
The direct impact of the fiscal stimulus has tapered off, as RBI also states. And though drought is no longer as serious as was once feared, it will have some impact. Consequently, it is premature to exit from stimulus packages. Fair enough, but stimulus doesn’t mean only fiscal policy, there is monetary policy too. A good reason for tightening monetary policy would have been inflation, which RBI now thinks will be 6.5% in end-March 2010, not 5% as was originally expected, and higher than target of 4 to 4.5%. RBI has mentioned increases in prices of assets like stocks, real estate and commodities. However, inflation has been driven by food price increases, whether one uses WPI or CPI, with food weights higher under CPI than WPI. In its October report, PM’s Economic Advisory Council (EAC) concluded: “Inflationary pressures on the food front will continue to be a major problem for policy formulation for the rest of 2009/10 and up to the beginning of the next monsoon season, which...
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