NEW DELHI: Fearing a partial rollback of recession-time incentives by Finance Minister Pranab Mukherjee in the Budget, India Inc wants the stimulus package to continue for one more fiscal.
Around 400 CEOs, consulted by industry chamber Assocham for a survey on industry’s expectations of Budget proposals for 2010-11, wanted the Finance Minister to retain fiscal concessions in the next financial year. Their simple argument is global economy is yet to recover fully from the recession.
As the fiscal deficit for financial year 2010 has been pegged at 6.8 per cent of GDP - a 16-year high, Mukherjee is likely to provide a roadmap for withdrawal of fiscal incentives.
“A carefully-designed stimulus packages announced by the Government in the wake of economic slowdown enabled the country to weather the crisis better than many other countries,” Mukherjee said at an international conference here on Wednesday.
The fiscal stimulus to India Inc was at 3.5 per cent of GDP (Rs 1,86,000 crore) at current market price for the year 2008-09. The tax concessions to industry are more than Rs 42,000 cr, Mukherjee informed.
An increase in the Cenvat rate for excise duty by 2 percentage points may be the first step towards withdrawing the post-crisis fiscal stimulus in the Union Budget for 2010-11. The Government had reduced the Cenvat rate for excise duty from 14% to 8%—in two rounds, by four percentage points in December 2008 and two percentage points in February 2009.
Why rollback incentives?
BESIDES a ballooning fiscal deficit, the proposal for a partial rollback of these tax cuts has been revived following the advance estimates for GDP pegging the growth rate for 2009-10 at 7.2 per cent, up from 6.7 per cent in 2008-09 (quick estimates), rise of India’s exports by 9 per cent and industrial production zooming by 16.8 per cent in December 2009. (see Table) Senior policy makers like Montek Singh Ahluwalia-Deputy Chairman Planning Commission, C Rangarajan-Chairman Prime Minister’s Economic Advisory are batting for stimulus withdrawal.
Global consultancy firm KPMG Executive Director Vikas Vasal notes stimulus as a ‘short-term life support’ measure and it cannot continue forever.
But India Inc is not amused either by these bright numbers and arguments for its withdrawal. Secretary General, FICCI, Amit Mitra, cautions about the IIP numbers.
“ This strong growth has come over the negative growth of 0.6 per cent in December 2008 in manufacturing,” he points out pitching for continuing the stimulus package for India Inc.
Forwarding a similar argument of low base effect in export figures A Sakthivel, President, FIEO, argues that the cost of stimulus given to exports as a percentage of total exports is miniscule. Stimulus to the export sector was primarily in the form of 2% interest subvention, high DEPB and Duty Drawback and refund of services tax on 19 services.
D E Ramakrishnan, member of Prime Minister’s Task Force on MSME and chairman of Paramount Group called for an introspection as to why only a paltry Rs 15,000 crore has reached the sector against Rs s 5, 61,000 Crore of liquidity was infused in to the system since October 2008.
TNCCI President N Jagadeesan, bats for stimulus package till full recovery. But his illustrious predecessor V Neethi Mohan differs arguing stimulus should be given to sectors in dire need.
Source : expressbuzz.com