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India to pull back stimulus package

Times of India had the following story-

Stimulus may be rolled back as recovery sets in
With the economic slowdown bottoming out, the stage could be set for a "gradual and caliberated" rollback of revenue giveaways contained in the stimulus packages, starting with a review of the 2% excise and service tax cuts announced in the interim Budget.
The confidence that the economy might have turned the corner is growing in government and its attention is turning to the fiscal deficit that has grown larger in view of Rs 70,000 crore of revenue concessions coupled with big spending plans and reduced tax collections. The fiscal deficit has been put at over 10% of GDP.
It is the excise and service tax cuts amounting to Rs 30,000 crore that may be reviewed first....continued

My 2 cents on this story-
1. Overall, it is a very bad idea to even consider thinking about
2. Its seems like the govt has become not only optimistic but also certain about the future. I think there is still time for the recovery. India's growth is not going out of control. So why dampen it??
3. Govt cannot be uncertain about the steps it is going to take. This level of uncertainty will trickle down to the other economic agents and lead to delay in decision making
4. No need to worry about the debt. We are in control. Pulling back stimulus is a very naive way of controlling debt
5. Inflation is also under control
6. I am not sure about whether the govt considers the earlier rolled out packages as a success and a key reason behind the slight growth recovery. If it does, then I would would say that govt by pulling back stimulus would be just killing the geese which had been laying golden eggs

Are we out of this crisis?

I don't know the answer to this question. The recent data shows that GDP of a few countries is growing, but the unemployment rate is not falling. Infact it is rising.This is true for both U.S. and Japan.Intutively, people would expect companies to start hiring in an expanding economy.

Economic purgatory- thats what Krugman calls this phase. He does NOT admit that there is a lag between increase in GDP and decrease in unemployment and also does not provide any reason behind this trend.

Here is an attempt to discuss the key reasons-
Please add any others reasons that you believe are leading to this jobless growth phase-
1. I feel globalization is a key dampner here. Almost every second
company's fortune are tied to fortune's of clients from other economies. It will
require a lot more countries to come out of the recession in order for the companies to start hiring. It is too soon for the companies to become confident about future demand
2. People are still uncertain about future. Every recession bring with it a feeling
of unsecurity and uncertainty about future. This feeling goes away with time
3. As a result of the crisis, the companies have become focused on increasing productivity of existing labor force. Hiring is the next logical step after this.
4. Any others?

Domestic consumption- key to sustainable growth

See below a table from an article on 'The Hindu Business Line'-



I find this table to be interesting. As expected, U.S. is at the top of the list and the South-East Asian countries are at the bottom.

I would have loved to see the effect of leverage on consumption. Consumption based on income is good, however consumption based on heavy leverage is always undesirable and risky. This is the reason why U.S. is contracting and India is still expanding.

The marginal propensity to consume has been low in India and even lower in China. However, this will definitely increase in the future.
... and yes, domestic consumption holds the key to any country's turn around; this will lead to self-sustaining growth