PM panel calls for rollback of fiscal stimulus

Is confident of economy posting over 7.2 per cent GDP growth in 2009-10

“Government finances have come under a severe strain since 2008-09 and fiscal imbalance in the country is now a matter of concern. Government cannot continue with the kind of large gap between expenditure and revenue recorded in the last two years,” Chairman C Rangarajan told reporters while releasing the council’s review of the economy in 2009-10.

 Rangarajan made a case for partial roll back of stimulus by way of raising excise duties and reducing expenditure. He projected that the economy will grow by over 7.2 per cent during the current fiscal, at 8 per cent in 2010-11 and may exceed 9 per cent the year after.

Significantly, on taxation matters, it has suggested that in view of proposed introduction of Goods & Services Tax (GST) the Centre could expand the base of Service Tax by converting the selective taxation of services into a general taxation, unify the threshold and rate structure of Cenvat and Service Tax and peg it between the current and the previous higher level.

On rising prices, the panel, while warning that “there is a risk of high food inflation cascading to other sectors in the next fiscal” called for more government vigilance against rising inflation. It agreed with RBI’s projection of  inflation at 8.5 per cent by end of this fiscal. To cool down food inflation it suggested timely release of food-gain in sufficient quantity below prevailing market prices and advance planning for imports. The council, however, expects that flow of foreign funds into stock and bond markets during the second half of current fiscal are expected to slow down to US $ 9.2 billion, half the amount received in the first six months. On country’s export front, the panel forecast 12 per cent growth at $ 88 billion in the second half of current fiscal registering 12 per cent growth.

Sen for status quo
Meanwhile, disagreeing with the suggestion of the advisory panel, Chief Statistician Pronab Sen said there is no case for immediate withdrawal of stimulus as the economic recovery is not broadbased.

“I think it’s still early... because what data we have still doesn’t give very great confidence. So I think we need to be a little cautious on the stimulus withdrawal,” Sen told PTI when asked whether Finance Minister Pranab Mukherjee should withdraw stimulus in the forthcoming budget.

The Budget to be presented by Finance Minister Pranab Mukherjee on February 26, he added, could lay down the roadmap for withdrawal of stimulus to deal with fiscal deficit, which is estimated to go up to 6.8 per cent of GDP in the current fiscal from 6.2 per cent a year ago.