Stimulus may be pulled out in two phases

Stimulus may be pulled out in two phases
The Economic Times, January 14, 2010, Page 1

Deepshikha Sikarwar NEW DELHI

THE government may return to pre-crisis indirect tax rates in two phases beginning April, as it weighs potential derailing of economic recovery if this is done at one go in the government’s eagerness to move towards fiscal prudence.

The partial rollback suggestion figured in the first round of pre-budget consultations between Prime Minister Manmohan Singh, finance minister Pranab Mukherjee and other policymakers recently, a senior government official privy to the debate told ET.

Now that the economic growth appears to be firm with strong industrial output data, officials are looking to roll back easy policy measures taken to save the economy from losing growth momentum because of a global recession. While those measures helped realise the goal, they pushed fiscal deficit to a 16-year high of 6.8% of GDP.

Corporate profits are soaring, consumers are spending, but lobby groups are advocating continuation of easy policies to avoid derailing the recovery.

“There is definitely no need to continue the stimulus for sectors that are doing well... an overdose of stimulus is also not good,” said DK Joshi, principal economist, Crisil.

The government had cut the cenvat rate to 10% from 14% in December 2008 and then by another 2 percentage points to 8% in the interim budget in February 2009. The service tax rate was cut to 10% from 12%.

The first round of hike in cenvat, or the median excise duty rate levied on nearly 90% of goods manufactured, and service tax is likely in the forthcoming budget, said the official. The second phase is yet to figure in discussions.

The government’s view on rollback is strengthened by the factors that point to the prospects of the economy returning to 9% growth after industrial production grew a strong 11.7% in November 2009, the highest in about two years. Sales of automobiles, cement and TV sets are soaring.

The top 50 companies on the S&P CNX Nifty index, including Maruti Suzuki and Hindalco, may report a 27% jump in earnings growth for the December quarter, a forecast by ETIG shows.