The Hindu : National : Meagre package won’t mitigate crisis: CPI(M)

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Meagre package won’t mitigate crisis: CPI(M)

Special Correspondent

NEW DELHI: The stimulus package announced by the government on Friday is unlikely to reverse the slowdown in economic growth, the Communist Party of India (Marxist) has said.

Amounting to just half per cent of the country’s gross domestic product, the “meagre” package is grossly inadequate to meet the impact of the global crisis, for both the State governments and people at large, the CPI(M) said in a statement.

“More disturbingly,” the package was being used to further liberalise capital account convertibility. These measures included easing external commercial borrowing norms for corporates, especially for the real estate sector, and raising the investment limit for foreign institutional investors (FIIs) in corporate bonds.

Apprehensive that such steps would increase the inflow of speculative foreign capital and do little to bolster the real economy, the CPI(M) charged the United Progressive Alliance government with refusing to learn the right lessons from the sub-prime crisis of the U.S.

Noting that industrial production and exports had fallen drastically, the party said the situation could not be salvaged by merely increasing liquidity through interest rate cuts and tax concessions. These might make capital cheaper and more accessible to producers but the global recession was caused by the insolvency of borrowers. Economically strengthening the borrowers would increase domestic demand and stimulate growth. This, however, required much larger levels of public investment.

Minor relaxation for additional market borrowings would not relieve the financial constraints of the State governments.

What was required was a comprehensive debt-relief package for the State governments and real transfer of resources from the Centre to the States.

By ruling out any more increase in public investment in the current financial year and announcing that further measures would be announced in the next fiscal, the UPA government was shifting the burden to the next government, the CPI(M) said.

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