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

Created by : Swati Raut, Product Manager, Aviva  | 12 03 2009 12:34:48 +0000
Industry : Public Sector/GovernmentFunctional Area : Strategy Execution(Strategy & Execution)
Keywords : government economic capital recovery packages stimulus accumulation
Activity:  213 views;  last activity : 07 06 2010 20:18:09 +0000

The current slowdown in our economic system and to the efforts to overcome it through the use of "fiscal policy" and its "stimulus packages" is more government spending and lower taxes specifically designed to promote consumption. This includes giving income-tax refunds to people who paid no income tax and who, because of their low incomes, can presumably be most counted on to rush out and consume more as soon as additional funds are put in their hands.
The amount of capital in an economic system determines its ability to produce goods and services and to employ labor, and also to purchase consumers' goods on credit. The greater the capital, the greater the ability to do all of these things; the less the capital, the less the ability to do any of these things.
In this scenario, in which way do you agree? Is it
            The Capital accumulation needed for economic recovery
                                                     or
            The Goverment Stimulas Packages good for economic recovery

  
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Capital Accumulation Vs Government Stimulus Packages
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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. 
By RAMANATHA PRABHU N, Chartered Accountant  | 12 07 2009 08:53:01 +0000
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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.
By Swati Raut, Product Manager, Aviva  | 12 03 2009 12:34:48 +0000
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IN TIMES OF GENERAL ECONOMIC SLOWDOWN/RECESSION,INITIALLY GOVERNMENT STIMULUS PACKAGES ARE VITAL TO EFFECT SPEEDIER RECOVERY-ONLY THEN CAPITAL ACCUMULATION WOULD BE EFFECTIVE
By VINAY BUSHAN. S, Head/VP/GM-Accounts, SUNDHARAMS PVT LTD  | 12 07 2009 08:08:25 +0000
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The essential meaning of a "stimulus package" is the government's financing of consumption, indeed, practically any consumption, by anyone, for almost any purpose, in the conviction that this will cause an increase in employment and production as the means of replacing what is consumed. Despite talk of avoiding wasteful spending and being "careful with the taxpayers' money," the truth is that from the point of view of the advocates of economic stimulus, the bigger and more wasteful the project, the better. Government spending in the form of an economic stimulus injects money back into the economy, which indirectly results in increased investor and consumer confidence. This ultimately bolsters the stock market. Eventually, The Government recoups a large portion of the money doled out in the form of taxes.
By Rakesh Chakraborty, Sr. Associate, ING  | 12 03 2009 12:40:56 +0000
Argue for "Capital Accumulation"
Argue for "Government Stimulus Packages"
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