<p>The stunning December industrial growth numbers and advance estimates by the CSO pegging economic growth at over 7 per cent for the current fiscal have prompted analysts and government advisors to call for a phased exit of the stimulus packages as it has widened the fiscal deficit hugely.<br /><br />However, industry says the recovery is still confined to a few large sectors and the government should not rush in to exit the stimulus measures, as it would be dangerous for both economic growth and employment generation.<br /></p>.<p>Industrial production recorded a 16-year high of 16.8 per cent in December, reflecting well the dividend of stimulus packages given by the government over the past five quarters.<br /><br />However, the very same packages, comprising heavy duty cuts and stepped up public spending have also jacked up fiscal deficit to 6.2 per cent of GDP last fiscal from the budgeted level of 2.5 per cent. This fiscal, it is estimated at a hefty 6.8 per cent.<br />Prime Minister's Economic Advisory Council chairman C Rangarajan said the very strong IIP (industrial production) numbers for December will likely put in motion the process of fiscal consolidation by withdrawing some of the stimulus measures.<br /><br />Cautioning the government against exit steps in the budget to be unveiled on February 26, Ficci secretary-general Amit Mitra said, "some important sectors like food products, cotton textiles, leather and miscellaneous manufacturing is lagging behind in terms of growth." Pointing out that the current growth seems to be driven by a few large sectors, Ficci's Mitra said, "we also need to be cautious because this strong (manufacturing) growth has come over the negative growth of 0.6 per cent in December 2008."<br />Withdrawing stimulus means increasing excise duty, or service tax or cutting Plan expenditure. If tax rates are raised, Mitra said, it would lead to pressure on prices that will push up the already surging prices.<br /><br />Assocham president Swati Piramal also said IIP figures indicate that recovery will become pronounced in the next few months and stay sustained provided stimulus package is continued for the next fiscal.<br /><br />After the Central Statistical Organisation (CSO) came out with its advance estimates last Monday, pegging the economic growth at 7.2 per cent this fiscal, Planning Commission Deputy Chairman Montek Singh Ahluwalia also favoured phasing out of the stimulus packages.<br /><br />"We should say the stimulus has succeeded and we should begin to phase it down. Fiscal deficit next year would be lower than that of this year," he said confidently.<br />However, when asked about it after the release of December IIP data yesterday, Ahluwalia opted to be evasive, saying, "we should keep the mystery alive."<br />HDFC Bank economist Jyotinder Kaur also said, "I would expect some kind of withdrawal of tax cuts in the budget."<br /><br />After the release of the CSO data, leading global entities Moody's and Barclays Capital said they expect the government to partially roll back the stimulus packages"The improving data on private demand is likely to encourage policymakers to gradually withdraw the stimulus measures," Moody'seconomy.com said while reacting to the CSO data last week.<br /><br />Barclays Capital also said, "in the upcoming budget, we expect the government to pull back some of the fiscal support measures."<br /><br />However, the CSO data are based on actual data for the first half, partial actual data for the third quarter and the total projections for the final quarter. Hence the final growth numbers could deviate from the projections, which is most likely will be an upward revision, going the December IIP numbers.<br /><br />Pointing to the lacunae on relying only on industrial growth figures for withdrawing stimulus, Chief Statistician Pronab Sen had said these data give only production side picture and do not tell whether demand is there in the country to take that much supply or only inventories are building up.<br /><br />He had said it was up to the Finance Minister to "play safe" and wait for final GDP data to come by May for considering withdrawal of stimulus, or "play a gamble" and rely on strong IIP figures to start rollback of these steps.<br /><br />February 26 will be the day, when it will be exactly known whether the Finance Minister "played gamble" or played it safe.</p>
<p>The stunning December industrial growth numbers and advance estimates by the CSO pegging economic growth at over 7 per cent for the current fiscal have prompted analysts and government advisors to call for a phased exit of the stimulus packages as it has widened the fiscal deficit hugely.<br /><br />However, industry says the recovery is still confined to a few large sectors and the government should not rush in to exit the stimulus measures, as it would be dangerous for both economic growth and employment generation.<br /></p>.<p>Industrial production recorded a 16-year high of 16.8 per cent in December, reflecting well the dividend of stimulus packages given by the government over the past five quarters.<br /><br />However, the very same packages, comprising heavy duty cuts and stepped up public spending have also jacked up fiscal deficit to 6.2 per cent of GDP last fiscal from the budgeted level of 2.5 per cent. This fiscal, it is estimated at a hefty 6.8 per cent.<br />Prime Minister's Economic Advisory Council chairman C Rangarajan said the very strong IIP (industrial production) numbers for December will likely put in motion the process of fiscal consolidation by withdrawing some of the stimulus measures.<br /><br />Cautioning the government against exit steps in the budget to be unveiled on February 26, Ficci secretary-general Amit Mitra said, "some important sectors like food products, cotton textiles, leather and miscellaneous manufacturing is lagging behind in terms of growth." Pointing out that the current growth seems to be driven by a few large sectors, Ficci's Mitra said, "we also need to be cautious because this strong (manufacturing) growth has come over the negative growth of 0.6 per cent in December 2008."<br />Withdrawing stimulus means increasing excise duty, or service tax or cutting Plan expenditure. If tax rates are raised, Mitra said, it would lead to pressure on prices that will push up the already surging prices.<br /><br />Assocham president Swati Piramal also said IIP figures indicate that recovery will become pronounced in the next few months and stay sustained provided stimulus package is continued for the next fiscal.<br /><br />After the Central Statistical Organisation (CSO) came out with its advance estimates last Monday, pegging the economic growth at 7.2 per cent this fiscal, Planning Commission Deputy Chairman Montek Singh Ahluwalia also favoured phasing out of the stimulus packages.<br /><br />"We should say the stimulus has succeeded and we should begin to phase it down. Fiscal deficit next year would be lower than that of this year," he said confidently.<br />However, when asked about it after the release of December IIP data yesterday, Ahluwalia opted to be evasive, saying, "we should keep the mystery alive."<br />HDFC Bank economist Jyotinder Kaur also said, "I would expect some kind of withdrawal of tax cuts in the budget."<br /><br />After the release of the CSO data, leading global entities Moody's and Barclays Capital said they expect the government to partially roll back the stimulus packages"The improving data on private demand is likely to encourage policymakers to gradually withdraw the stimulus measures," Moody'seconomy.com said while reacting to the CSO data last week.<br /><br />Barclays Capital also said, "in the upcoming budget, we expect the government to pull back some of the fiscal support measures."<br /><br />However, the CSO data are based on actual data for the first half, partial actual data for the third quarter and the total projections for the final quarter. Hence the final growth numbers could deviate from the projections, which is most likely will be an upward revision, going the December IIP numbers.<br /><br />Pointing to the lacunae on relying only on industrial growth figures for withdrawing stimulus, Chief Statistician Pronab Sen had said these data give only production side picture and do not tell whether demand is there in the country to take that much supply or only inventories are building up.<br /><br />He had said it was up to the Finance Minister to "play safe" and wait for final GDP data to come by May for considering withdrawal of stimulus, or "play a gamble" and rely on strong IIP figures to start rollback of these steps.<br /><br />February 26 will be the day, when it will be exactly known whether the Finance Minister "played gamble" or played it safe.</p>
