Will Budget partially rollback stimulus?

Speculation is that taxes and duties may go up

PTI | February 25, 2010


What will come out of his bag today?
What will come out of his bag today?

Finance Minister Pranab Mukherjee is all set to present the Budget for 2010-11 on Friday, amid speculation that taxes and duties may be raised as part of a partial rollback of stimulus prescribed by government advisers.

However, direct tax rates are not likely to be altered for the time being as the Finance Ministry is likely to wait for implementation of Direct Taxes Code from 2011-12, before initiating any change.

The direct taxes code, which will replace the archaic Income Tax Act, is unlikely to come in the budget session, sources said.

The debate on withdrawal of stimulus measures introduced in the wake of the global economic slowdown since late 2008 intensified today with Economic Survey and Finance Commission favouring gradual rollback of stimulus to check strains on government finances, but India Inc wanted the sops to continue to push up economic growth further.

The Economic Survey tabled in Parliament on Thursday suggested that stimulus be withdrawn gradually, since the economy is on the rebound and the growth is broadbased.

"The broad-based nature of the recovery creates scope for a gradual rollback, in due course, of some of the measures undertaken over the last 15 to 18 months," said the Survey.

The Finance Commission also recommended "a calibrated exit strategy from the expansionary fiscal stance of 2008-09 and 2009-10."

Last week, the Prime Minister's Economic Advisory Council had pitched for raising excise duty to the level of service tax and broadening the service tax net as part of stimulus withdrawal. Currently, excise duty stands at 8 per cent and service tax at 10 percent.

However, the industry is of the view that the government should continue with these incentives in the upcoming Union Budget to ensure high economic growth.

"For a higher growth, the government will have to adopt a calibrated approach and continue with stimulus package for at least another fiscal," Assocham President Swati Piramal said.

FICCI President Harsh Pati Singhania said: "Government should continue with stimulus measures as the growth in the industrial and export sector is mainly because of this support".

Roll back of stimulus basically means raising of indirect taxes, cut earlier, and compressing expenditure.

In the wake of global financial meltdown, the Centre has cut excise duties by six per cent, service tax by two per cent besides stepping up plan expenditure to give Rs 1,86,000 crore stimulus to push the country's economic growth.

This has helped economic revival with growth galloping to 7.9 per cent in the second quarter of this fiscal against 6.1 per cent in the previous quarter and 5.8 per cent each in the preceding two quarters. This year, the growth is pegged at 7.2 per cent against last year's 6.7 per cent.

However, this also widened fiscal deficit to 6.2 per cent of GDP during 2008-09 from budget estimates of 2.5 per cent.

The fiscal deficit is projected to widen to 6.8 per cent in the current fiscal.

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