Economists want stimulus to continue

Economists want stimulus to continue
Business Standard, January 16, 2010, Page 5

BS Reporter / New Delhi

Economists on Friday said stimulus should continue until the economy had firmly recovered. In a pre-Budget meeting with Finance Minister Pranab Mukherjee, economists said stimulus was required, but at the same time the government should not drift away from the path of fiscal consolidation.

“The general feeling of economists is that it is not the time to withdraw the stimulus,” former chief economic advisor Nitin Desai told reporters after meeting the finance minister.

Govinda Rao, director of National Institute of Public Finance and Policy and member of Prime Minister’s Economic Advisory Council, said the government may have to continue stimulus while at the same time it should control the fiscal deficit by taxing services.

Fiscal deficit is expected to widen to 6.8 per cent this financial year. The government is targeting a fiscal deficit of 5.5 per cent of GDP in 2010-11 and 4 per cent in 2011-12. FRBM Act required the government to bring down the fiscal deficit to 2.5 per cent of GDP by 2008-09.

Rao said the government would be able to bring down fiscal deficit to 5.5 per cent of GDP without any difficulty next year as arrears on account of Sixth Pay Commission report would not be there and the outgo on account of farm loan waiver would be less.
Asked whether there is a room for hike in excise duty, Rao said any change in excise duty should bring the rate on par with that of service tax. He said service tax should be brought down from 10 to 9 per cent and the excise duty be increased to 9 per cent from 8 per cent.

Partha Sen of the Delhi University’s School of Economics said the stimulus measures should not be withdrawn hastily as India was still not out of the woods.

The government gave 6 per cent reduction in excise duty and 2 per cent cut in service tax to help the industry deal with the slowdown. The measures have helped the economy grow by 7.9 per cent in July-September quarter this financial year.

Industry chambers have already urged the government not to withdraw the stimulus for next six months.