India calls for coordinated fiscal stimulus to arrest recession

November 16th, 2008 - 12:38 am ICT by IANS  

Manmohan SinghWashington, Nov 15 (IANS) Seeking a global response to the financial crisis, Indian Prime Minister Manmohan Singh Saturday called for a coordinated fiscal stimulus by the richer countries to help mitigate the severity and duration of the recession.”Since the crisis is global, it calls for a coordinated global response and this summit is, therefore, timely,” he said as world leaders from the Group of 20 (G20) leading economies met here for the second day.

The historic summit convened by US President George W. Bush brings together Group of Seven industrial nations and a dozen emerging markets like India, China, Brazil and South Africa, and the European Union, which together account for 90 percent of the global economy.

“An obvious issue is to consider whether the emergence of recessionary trends calls for some fiscal stimulus,” said Manmohan Singh suggesting, “A coordinated fiscal stimulus by countries that are in a position to do so would help to mitigate the severity and duration of the recession.

“It would also send a strong signal to investors around the world. Resort to fiscal stimulus may be viewed as risky in some situations, but if we are indeed on the brink of the worst downturn since the Great Depression, the risk may be worth taking,” he said.

“We should, therefore, take all possible measures at the national level to complement any coordinated international stimulus,” the prime minister added.

Manmohan Singh stressed the “need to distinguish between the immediate priority, which must be to bring the crisis under control as quickly as possible with as little adverse effect on developing countries, and the medium term objective of reforming the global financial architecture to prevent similar crises in future.

“The international community needs to consider special initiatives to counter the shrinkage of capital flows to developing countries that is almost certain to occur over the next two years,” Manmohan Singh said.

“Expanding investment in infrastructure by the public sector and also the private sector where possible is an ideal countercyclical device,” he said as “it has the immediate effect of stimulating demand countercyclically and the longer-term effect of laying the conditions for an early return to faster growth.

“Investment in infrastructure is today perhaps the best signal for reviving private investment, including FDI, tomorrow,” he said.

“Industrialised countries can also help to revive trade flows in developing countries by expanding the scale of export credit finance available to these countries,” he said.

“We know there is a temporary market failure in this area with elevated risk perceptions which discourage private flows,” Manmohan Singh said.

But “there is a need to intervene to overcome market failure. A collapse of trade is the last thing that one wants in the current crisis, with all its implications for growth and employment.

“Concerted government action in expanding export credit financing on reasonable terms will help support the pace of development in developing countries, which is critical for achieving poverty alleviation and employment objectives,” the prime minister said.

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