Economic Revival & Stimulus Packages

In the aftermath of the global economic crisis that gripped the world in 2008-09, global markets have rebounded sharply from their lows tested in the period between October 2008 to March 2009. This has been largely on the back of stimulus packages announced by the various governments, which have helped boost economic activity and create fresh demand. While many Asian countries like India, China have been back on growth track, many parts of Europe are still struggling to overcome the after effects of the crisis. Coinciding with the G20 summit at Toronto, a debate has been sparked off about the appropriate timing of the withdrawal of the stimulus packages.

The BRIC countries (Brazil, Russia, China, India) are in favour of continuation of the stimulus packages, as they fear a fall in their exports to the Euro zone, if the stimulus is withdrawn in haste. They are also opposed to the levying of the proposed tax on bank transactions to pay for the future bailouts. But the German Chancellor has reiterated her resolve to push for the tax, which threatens the existence of the European Union. The financial system of the developed world has proved to be fragile, as most lenders in these countries have escaped unscathed in the midst of a severe crisis. Indian PM Dr. Manmohan Singh has sounded a word of caution against the hasty withdrawal of the stimulus packages; "We have to be conscious that the recovery is still fragile and uneven. New worrying signs have emerged in the euro zone".

India is, however, taking appropriate steps to lower its fiscal deficit in a calibrated manner. The hike in petroleum prices amidst opposition is seen as a step in this direction. The Finance ministry is firm in its resolve to bring down the fiscal deficit to 4.1% of GDP by 2012-13, from the current level of 6.7%. The outcome of the G20 summit shall be watched by market pundits carefully, as the future of risk capital depends a lot on the sustained global recovery. Any set back to the recovery process is likely to put pressure on the equity markets around the world. The signs emerging from the Euro zone do not instill confidence in the equity markets. Investors are, therefore, advised to tread with caution, at least in the immediate short term.