Economic recovery requires what? - 'Capital Accumulation' or 'Government Stimulus Packages'

The Reserve Bank has set its focus on managing economic recovery and the first phase of monetary tightening will arrest inflation without hurting growth. At present, the focus in India has shifted from managing the crisis to managing the recovery. The key challenges is withdrawing soft money policy, the exit stratagy that needs to be designed, considering that the recovery is as yet fragile but there is uptrend in inflation, though largly from supply side, which could engender inflation expectations. The RBI has initiated the first phase of exit in Oct 2009 review of monatary policy in caliberated manner mainly by withdrawal of unconventional mesures taken during the crisis. It has raised the requirement for banks to hold portion of the deposits in cash, gold and Govt.securities by one percentage points to 25 per cent.This view is only from the view point of banking sector. 

The economic recovery requires that the economic system rebuild its stock of capital and that to be able to do so, it needs to engage in greater saving relative to consumption. This is what will help to restore the supply of credit and thus help put an end to financial failures based on a lack of credit. Recovery will be achieved by the combination of more saving, capital, and credit along with lower wage rates, costs, and prices. The economic recovery requires greater saving and the accumulation of fresh capital, to make up for the losses caused by credit expansion and the malinvestment and overconsumption that follow from it. Yet the imposition of "stimulus packages" results in the further loss of capital.