Stimulus must stay, FM told

Economists propose taxing all services for fiscal consolidation

At the same time, the economists in a pre-budget meeting with Finance Minister 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 Govinda Rao told reporters afterwards. He said the stimulus packages should continue until the economy firmly recovered.

Asked whether there is scope for raising the excise duty, Rao, a 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.

Pay commission

“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 is not rolled back, he said, tax all services.  Next fiscal, arrears on account of VIth Pay Commission report would not be there and outgo on account of farm loan waiver would be less, 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 Nitin Desai said “the general trend was (that) it’s not the time to withdraw the stimulus. It is the general feeling of the economists.” Partha Sen of Delhi School of Economics said the stimulus package should not be withdrawn hastily because the economy is not out of the woods yet.