India PM: early stimulus exit may hit global recovery

TORONTO, June 26 Sat Jun 26, 2010 9:18am EDT

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TORONTO, June 26 (Reuters) - Citing a risk of deflation, Indian Prime Minister Manmohan Singh said the Group of 20 major and emerging economies should not rein in budget deficits too fast but coordinate policy to ensure a sustained economic recovery.

"My own feeling is that early fiscal retrenchment carries very considerable global risks," Singh told the Toronto Star in an interview published on Saturday, shortly before his arrival for the G20 summit in Toronto over the weekend.

"But right now, the danger of deflation in the global economy is, in my view, much greater than the danger of inflation," he said.

The G20 meeting takes place amid a debate over how to improve public finances without compromising the uneven recovery from the global financial crisis.

The U.S. has argued the recovery could be derailed by the accelerating austerity measures taken in much of Europe to cut debt and deficits. But G8 leaders appeared to have papered over their differences ahead of the summit. [ID:nN25200590]

Singh said the manner of Europe's handling of its debt problems would be "a major determinant of which way the world economy evolves."

India has begun its own process of rolling back stimulus measures announced in the wake of the financial crisis.

It has outlined a roadmap to cut its deficit to 4.1 percent of GDP by end-March 2013, from a budgeted 5.5 percent in the current fiscal year to end-March 2011, helped by buoyant revenues from accelerating growth.

Asia's third-largest economy is set to grow 8.5 percent in the current year, following a 7.4 percent expansion in the previous year. (Reporting by C.J. Kuncheria; editing by David Storey)

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