Economists want stimulus to stay
Amid reports that the stimulus may be rolled back partially, economists today cautioned the government against withdrawing these pump-priming measures as the economic recovery is not on a strong footing as yet.
At the same time, the economists in a pre-budget meeting with the finance minister, Mr Pranab Mukherjee, wanted the Centre to go in for fiscal consolidation, taxing all services.
"We may have to continue stimulus...At the same time we have to control fiscal deficit," National Institute of Public Finance and Policy director Mr Govinda Rao told reporters after the meeting.
He said the stimulus packages should continue until the economy firmly recovered.
Asked whether there was a scope for raising the excise duty, Mr Rao, a member of the Prime Minister's economic advisory panel, said if it had to increase then the rate should be equal to service tax.
He wanted the government to bring down service tax from 10 to nine per cent and increase excise duty from eight to nine per cent.
"If you have to increase excise, cut down services to merge the two rates at nine per cent. Then, you have goods and services tax at manufacturing stage," he added.
At the same time, he wanted the government to go in for fiscal consolidation. Asked how fiscal consolidation would be there when the stimulus was not rolled back, he said that all services should be taxed.
Next fiscal, arrears on account of the VIth Pay Commission report would not be there and the outgo on account of farm loan waiver would be less, Mr Rao said, adding the government could save 0.5 per cent of GDP on the fiscal deficit account this way.
"You can bring down fiscal deficit to 5.5 per cent of GDP without any difficulty," he added.
Former chief economic advisor Mr Nitin Desai said: "The general trend is (that) it's not the time to withdraw the stimulus. It is the general feeling of the economists.”
Mr Partha Sen of the Delhi School of Economics said the stimulus package should not be withdrawn hastily because the Indian economy is not out of the woods yet.
Earlier last week, industry chambers had also asked the finance minister not to withdraw stimulus as economy is yet to be on a firm recovery.
The government has given three stimulus packages totalling Rs 1,86,000 crore as duty cuts and other relief measures to boost the sagging Indian economy. While excise duty was cut by six per cent, service tax was slashed by two per cent and plan expenditure was stepped up.
As a fallout, the government's fiscal deficit rose starkly and is expected to be at 6.8 per cent of the GDP in the current financial year.
However, the measures have spurred demand with the economy growing by a stunning 7.9 per cent in the second quarter of this fiscal. This has led to speculations that stimulus now may be rolled back as the economy is on a revival mode.
Source : The Statesman
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