People's Democracy

The Polit Bureau of the Communist Party of India (Marxist) has issued the following statement January 3, 2009

Government�s Package will Fail to Stimulate Economy

The stimulus package announced by the UPA government on January 2, 2009 is grossly inadequate to meet the impact of the global crisis. There is only a mention of the meagre Rs 20000 crore (less than 0.5 per cent of India�s GDP) additional Plan outlay announced on December 7,2008, and no further spending plan has been announced. Industrial production and exports have already registered a drastic fall. The situation cannot be salvaged by merely increasing liquidity through interest rate cuts and tax concessions. These may make capital cheaper and more accessible for the producers, but the global recession has been caused by the insolvency of the borrowers. Economically strengthening the latter will increase domestic demand and stimulate growth. This, however, requires much larger levels of public investment.

What is more disturbing is the fact that in the name of a stimulus package, the government has pushed further capital account liberalisation measures like easing External Commercial Borrowing norms for corporates, especially for the real estate sector. The investment limit for FIIs in corporate bonds has also been raised. This will only help to enhance the inflow of speculative foreign finance capital and do precious little to bolster the real economy. The UPA government is refusing to learn the correct lessons from the sub-prime crisis of the US.

The minor relaxation for additional market borrowings would fail to relieve the financial constraints of the state governments. What is required is a comprehensive debt-relief package for the state governments and real transfer of resources from the centre to the states.

By ruling out any further increase in public investment in the current financial year and announcing that further fiscal measures will only be contained in the annual Plan for the next financial year, the UPA government is shifting the burden on to the next government. After having imported the global recession into the domestic economy by pursuing neoliberal policies, the UPA government is now abdicating its responsibility of reversing the adverse impact of the recession through effective policy interventions.