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G20 differ on stimulus exit

Toronto: World leaders were grappling last night to find the best strategy to exit from the global economic stimulus as India and US cautioned against immediate winding up of the government funding while European nations favoured slashing deficit in the next three years.

There was also difference among the grouping of 20 advanced and emerging major economies on the proposal for a universal tax to bail out to banks to avert the 2008- like financial crisis. As India warned developed countries against cutting back on public spending in the wake of the European crisis, saying it could trigger a "double dip recession", the draft of the final communique of the ongoing G-20 Summit spoke of the advanced economies committing to fiscal plans that will halve deficits by 2013.

Though India itself has a medium-term plan to halve the deficit by 2013-14 and to reverse the fiscal stimulus, Prime Minister Manmohan Singh cautioned the industrialised countries that contractionary policies followed by them could provoke a double-digit recession.

"Concerns about debt sustainability normally suggest a need for fiscal contraction. But circumstances are not normal. The recovery is still fragile and private demand in the industrialised countries is likely to remain weak. If contractionary policies are followed by many industrialised countries simultaneously, in these circumstances, it could provoke a double dip recession. This would have negative effects on developing countries and on the prospects for achieving the Millennium Development Goals (MDG)," he said.

Countries like Britain, France and Germany want quick end to the stimulus, but nations like India and the US are favouring a calibrated exit. — PTI