Stimulus measures stay for now: FM

Stimulus measures stay for now: FM
The Economic Times, September 9, 2009, Page 9

ET Bureau, NEW DELHI

Finance minister Pranab Mukherjee on Tuesday said stimulus needs to be continued as the economy is “just beginning to come out of woods” even as he ruled out any fresh tax cuts to provide relief in wake of drought that has impacted nearly half the country.

“We are constantly reviewing the economic situation. The just concluded G-20 meeting also reviewed the situation... it is not desirable to plan the exit strategy now,” Mr Mukherjee told reporters on the sidelines of the annual conference of chief commissioners and director generals of excise and customs here.

He, however made it clear that the government that faces the challenging task of returning to fiscal consolidation was not prepared to dole out further tax concessions to shore up any demand slowdown in rural India due to drought that has impacted more than 600 districts.

India has so far taken several measures such as cut in cenvat (the median excise duty rate) and service tax and higher spending on infrastructure programme to pump-prime the economy hit hard by the global recession which brought down its growth to 6.8% in 2008-09 as against an average about 9% growth in last three years. Though, the country grew by 6.1% in the first quarter in the current financial year, drought poses a threat to the growth.

The recent G-20 meeting of finance ministers and central bank heads said although the global economy looks brighter than its last meeting in April, the economic stimulus should not be removed until the recovery is well entrenched.

Mr Mukherjee’s statement comes even as country’s indirect tax collections declined by 28% in the first four months (April- July) of the current financial year and direct tax collections grew by a modest 4% in April- August. The minister, however, exuded confidence that the government will be able to meet the current fiscal’s indirect tax collection target of Rs 2,70,000 crore.

“The trend (in indirect tax collections) is a matter of worry and reflects the overall slowdown of the economy and the effect of stimulus measures,” he said

Higher spending on account of stimulus measures and shortfall in revenue collections due to economic slowdown have put pressure on country’s fiscal situation, with its fiscal deficit, which is the difference between the government’s total expenditure and its total receipts less borrowings, ballooning to 6.2%. The deficit is projected to further widen to 6.8 % in 2009-10, on account of these factors.

But, Mr Mukherjee promised to return to the path of fiscal consolidation soon. “The fiscal deficit is presently on the higher side and the government is determined to revert to the path of fiscal consolidation at the earliest,” he said.