Dr Arvind Virmani, Chief Economic Advisor, Ministry of Finance said that Monetary Policy to respond to the current financial meltdown should have been more rational aggressive and proactive than it has been.

He was addressing the 103rd Annual session of the PHD Chamber today in New Delhi. About calibrating the fiscal policy, Dr Virmani said that one has to take cognizance of the shrinking global ex ports. "We do not have any policy to address to what is happening in US or any other economy, which are reeling under financial meltdown," he added.

To a question from the floor as to when the contagion would last, Dr Virmani said that there was no clarity on the longevity of the crisis and the only fact that is recognized is that there is a crisis. "Some analysts pointed out the crisis would bottom  out by the end of the year and they revised their prediction to July 2009. The pertinent point is that it is a
global problem and its solutions are very closely linked to global economic developments," he added.

To another question from the floor that why the Government was not coming out with a comprehensive package for revival of the economy, Dr Virmani said that there are various macro issues that have to be considered while calibrating the fiscal sops in abnormal times. Prior to the financial meltdown, there was a surge in inflow of FIIs into the country, which had pushed up the exchange rate of rupee vis a vis dollar. This was followed by increase in global commodity prices that had led to price spiral particularly of oil, edible oil and iron and steel. Since Indian oil and mineral sector is glaobalized, there has been impact of these on the Indian economy. This was followed by huge global liquidity crisis. In the midst of all these developments, fiscal policy has to be calibrated to insulate the economy from any further shocks. He also mentioned that there is a lack consensus among economic analysts about the net effect of the fiscal sops. There is an school of thought, which believes that it would lead to further spiraling up of fiscal deficit and cautions about tightening the expenditure.

Dr Virmani clarified that all financial flows would not be affected. FDI flows have increased in the recent months so also NRI investment in the country. He also mentioned that in the last five years, employment generation in the country has gone up thanks to the export opportunities particularly in textiles, IT etc. He also said that the exchange rate of rupee is moving in tandem with the movement of Broad Index in US, which measures the fluctuations in the dollar exchange rate.

Dr Virmani said that the Government was not euphoric about the high pitched growth rates obtained in the last few years, which averaged over 8 percent per annum. Based on the experience of countries, which had experienced high growth, the Planning commission predicted that there will be a slowing down. But he said that he had confidence on the Indian entrepreneurs, who could weather rough waters and hoped that India would come out of the crisis sooner.

The others who spoke at the meeting included Dr. Subir Gokaran, Chief Economist, S&P, Asia Pacific, Dr. Dipak Dasgupta, Lead Economists, World Bank.