Also says there are greater risks of deflation, than inflation.
Prime Minister Manmohan Singh today warned that fiscal contraction across industrialised countries could result in double-dip recession.
Singh’s statement at the G-20 Summit came hours before leaders from the group agree on a common strategy to boost economic activity and strengthen the financial system.
In his intervention, the Prime Minister said members of the group should refrain from simultaneously withdrawing the economic stimulus despite concerns over the high debt levels in some countries, particularly in the Euro zone.
“Concerns about debt sustainability normally suggest a need for fiscal correction. But circumstances are not normal. The recovery is still fragile and private demand in industrialised countries is likely to remain weak,” he said, while pointing out that unemployment remained high despite a rebound in output.
In addition, he also noted there were greater risks of deflation, than inflation. “I would, therefore, urge that we must give greater primacy to consolidating the recovery, while also taking measured steps to deal with sovereign debt problems,” Singh said.
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European countries, led by Germany and France, have been demanding a cut in spending, while Canada has called for halving the debt-GDP (gross domestic product) ratio. Singh also said that India’s target is to increase the pace of economic expansion to 9 per cent in the next financial year, though it’s an ambitious goal. Besides, he said that India, which had managed to contain the impact of the global turmoil due to fiscal stimulus, had started the reversing process. The government has already announced its intent to halve the fiscal deficit by 2013-14, Singh said.
“Given the high growth in the economy this will generate favourable debt dynamics reducing our debt to GDP ratio significantly over time,” he added.
Besides, the Prime Minister said the public-private partnership route for strengthening investment in infrastructure would also help overcome fiscal constraints.
While recognising the need for fiscal consolidation, Singh suggested G-20 adopt a differential approach, reflecting the circumstances in the individual countries.
He said early restoration of financial stability in developed countries would also help by way of boosting private capital flows to emerging economies.
“Markets may well be reassured by credible steps by major industrialised countries, which impact the fiscal deficit significantly over time, even if the immediate impact is more limited,” he said. In addition, the prime minister said fiscal consolidation in advanced countries should be accompanied by structural reforms.
Singh also said that growth in developing countries would get a leg-up if developed countries did not succumb to protectionist pressures and called for a successful conclusion of the trade liberalisation negotiations.