A good time to end stimulus

A good time to end stimulus

The Prime Minister’s Economic Advisory Council, headed by former Reserve Bank governor C. Rangarajan, has sent out a strong indication that the withdrawal of stimulus measures should be undertaken in the Union Budget to be presented later this week. It has upped the GDP growth forecast for 2010-11 to 8.2 per cent, over the 7.2 per cent figure projected by the Central Statistical Organisation. The underlying tenor of the review of the economy by the PM’s advisory council is that unless the government returns to the path of fiscal discipline, there is danger of inflation getting out of control and interest rates hardening. This Budget is the appropriate time for the government to take strong measures to reduce the fiscal deficit by withdrawing the stimulus package on the taxation front. The situation is favourable both economically and politically for withdrawing the stimuluses. The economic recovery is robust, according to the latest figures of the index of industrial production. No doubt electricity and basic goods recorded a slower growth rate, but as the economy picks up and the headline macro figures are strong, these sectors now lagging behind in the pace of growth will automatically get a boost in 2010-11. The government has already been withdrawing on the expenditure side and moving towards reducing the fiscal deficit. Several ministries, such as rural development, chemicals and fertilisers and finance, have not spent the money that was estimated in the previous Budget. For instance, according to the Reserve Bank of India’s Macroeconomic and Monetary Development Third Quarter Review 2009-10, between April to November 2009 the Central government’s capital expenditure was just 45.8 per cent of the budgeted estimate, while its Plan expenditure was a little better, but still less than the budgeted estimate, at 53.4 per cent. The drop in fertiliser subsidy was largely due to the fall in prices in both domestic and international markets. But the decline in fertiliser subsidies helped to offset the 39 per cent increase in food subsidies during April-November 2009. The government’s cutbacks were more on the social side of expenditure. What is disturbing is that the landmark National Rural Employment Guarantee Scheme saw a significant amount of money remaining unspent because several state governments failed to initiate schemes under this programme. There is no genuine commitment by states to this programme since jobs are given only when they are asked for, and there is no push from the government’s side. But having said this, it is undeniable that the economic environment is conducive to a withdrawal of the stimulus on the taxation side.

This means excise and other concessions provided in the stimulus package can be discontinued in the coming Budget without disrupting growth. Even exports, which were lagging behind, have now picked up, according to the commerce minister Anand Sharma. Politically too the government is still in its first nine months, and can take heard-headed decisions as the next general election is due more than four years away.

A good time to end stimulus
A good time to end stimulus
A good time to end stimulus



source www.deccanchronicle.com/dc-comment