Stimulus exit must be gradual - PM econ adviser

MUMBAI (Reuters) - India is in no hurry to roll back economic stimulus measures in one go but efforts will be made in the budget later this month to lower the fiscal deficit, a top government adviser said on Friday.

An employee arranges currency notes at a cash counter inside a bank in Agartala, capital of Tripura, January 29, 2010. REUTERS/Jayanta Dey

“It will be calibrated and done in a manner that stimulus in the economy continues to persist and at the same time some adjustment is made as far as the deficit is concerned,” said C. Rangarajan, chairman of the prime minister’s economic advisory council.

He was speaking to reporters on the sidelines of a business conference in Mumbai.

The government had launched two fiscal stimulus packages since October 2008 worth $4 billion, or 0.4 percent of GDP, to help Asia’s third-biggest economy cope with the global credit crunch after Lehman Brothers’ collapse.

The Reserve Bank of India, which cut its key borrowing rate by 275 basis points in four moves between December 2008 and April 2009, raised the banks’ reserve requirement for the first time in nearly 1-½ years in its policy review on Jan. 29.

It raised the cash reserve ratio for banks by a higher than expected 75 basis points to 5.75 percent, to be effective in two stages this month.

“It has been pointed out repeatedly that the process of exit must be gradual, coordinated and must not be sudden, should not disrupt the economy and efforts will be made to bring down the fiscal deficit in the coming budget,” Rangarajan said.

India will present its annual budget on Feb. 26.

The government’s fiscal deficit is estimated at 6.8 percent of gross domestic product for 2009/10 (April-March), higher than 6.2 percent in the previous year as the government cut tax rates and boosted spending.

The economy grew 6.7 percent in 2008/09, slower than 9 percent or more in the previous three years. In last week’s policy review, the Reserve Bank raised its 2009/10 growth forecast to 7.5 percent from 6 percent projected earlier.

(Reporting by Neha D’Silva; Writing by Anurag Joshi)

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