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Pranab Mukherjee will present the Budget for 2010-11 on Friday amid speculation that taxes may be raised as part of a partial rollback of stimulus prescribed by the government's advisers.
Finance minister Pranab Mukherjee will present the Budget for 2010-11 on Friday amid speculation that taxes and duties may be raised as part of a partial rollback of stimulus prescribed by the government's advisers, reports PTI.
However, direct tax rates are not likely to be altered for the time being as the finance ministry is likely to wait for implementation of the Direct Tax Code from 2011-12 before initiating any change.
The Direct Tax Code, which will replace the archaic Income-Tax Act, is unlikely to come in the Budget session, sources said.
The debate on withdrawal of stimulus measures introduced in the wake of the global economic slowdown since late 2008 intensified on Thursday with the Economic Survey of the Finance Commission favouring a gradual rollback of stimulus to check strains on government finances, but India Inc wanted the sops to continue to push up economic growth further.
The Economic Survey tabled in Parliament on Thursday suggested that stimulus be withdrawn gradually, since the economy is on the rebound and the growth is broad-based.
"The broad-based nature of the recovery creates scope for a gradual rollback, in due course, of some of the measures undertaken over the last 15 to 18 months," said the Survey.
The Finance Commission also recommended "a calibrated exit strategy from the expansionary fiscal stance of 2008-09 and 2009-10."
Last week, the Prime Minister's Economic Advisory Council had pitched for raising excise duty to the level of service tax and broadening the service tax net as part of stimulus withdrawal. Currently, excise duty stands at 8% and service tax at 10%.
However, the industry is of the view that the government should continue with these incentives in the upcoming Union Budget to ensure high economic growth.
"For higher growth, the government will have to adopt a calibrated approach and continue with stimulus package for at least another fiscal," Assocham president Swati Piramal said.
FICCI president Harsh Pati Singhania said: "Government should continue with stimulus measures, as the growth in the industrial and export sector is mainly because of this support."
A roll-back of stimulus basically means raising of indirect taxes, which were reduced earlier, and compressing expenditure.
In the wake of the global financial meltdown, the Union government reduced excise duties by 6% and service tax by 2%, besides stepping up plan expenditure to provide Rs1,86,000-crore stimulus to accelerate the country's economic growth.
This has helped economic revival, with GDP growth galloping to 7.9% in the second quarter of this fiscal, compared to 6.1% in the previous quarter and 5.8% each in the preceding two quarters. This year, GDP growth is pegged at 7.2% against last year's 6.7%.
However, the stimulus measures also widened the fiscal deficit to 6.2% of GDP during 2008-09, from the Budget estimate of 2.5%.
The fiscal deficit is projected to widen to 6.8% in the current fiscal.
The Economic Survey predicts 8.75% GDP growth in 2010-11 while recommending a gradual roll-back of stimulus— a move that could entail a hike in excise duty and service tax.
A day before the general Budget, the Economic Survey of India on Thursday predicted 8.75% GDP growth in 2010-11 while recommending a gradual roll-back of stimulus—a move that could entail hike in excise duty and service tax, reports PTI.
Warning that high double-digit food price inflation could lead to higher-than-anticipated general level of inflation, the Survey called for effective steps to be taken to remove supply-side bottlenecks, together with other policies.
The Survey said the government policy, other calibrated measures and tax relief contained in the stimulus measures have helped the economy shrug off the effects of the slowdown triggered by the global financial meltdown in 2008.
The buoyancy in the economy, in tandem with reforms, would make India possibly the fastest-growing economy in the next four years, it said, while recommending that there was a need for improving the government’s financials by way of rasing tax and non-tax revenues and containing the Budget deficit.
Last week, the Prime Minister's Economic Advisory Council too had suggested a partial roll-back of stimulus measures, including raising excise duty and service tax rates.
The Survey also echoed this view: "...The broad-based nature of the recovery creates scope for a gradual rollback, in due course, of some of the measures undertaken over the last 15-18 months... so as to put the economy back on to the growth path of 9% annually."
The economy is projected to grow by 7.2% this fiscal, with industrial and services sectors growing at 8.2% and 8.7%, respectivelly. Full recovery is likely over the next two fiscals, with up to 8.75% growth in 2010-11% and 9% in the subsequent year.
Critical about the government's policy, particularly over the very high consumer-price inflation, the Survey said that the "hype" over kharif crop failure without taking into account the comfortable food stocks and rabi prospects "may have exacerbated inflationary expectations encouraging hoarding and resulting in higher inflation on food items.
"... in the case of sugar, delay in the market release of imported raw sugar may have contributed to the overall uncertainty, thereby allowing prices to rise to unacceptably high levels in recent months," it added.
Elaborating on the prospects in the short and medium term, the Survey observed that gross domestic savings stood at 32.5% of GDP in 2008-09, while the gross domestic capital formation (investment) was 34.9%.
"The rates of savings and investment have reached levels that even ten years ago would have been dismissed as a pipedream for India. On this important dimension, India is now completely a part of the world's fastest growing economies."
The Indian economy has been one of the least affected by the global crisis. "In fact, India is one of the growth engines, along with China, in facilitating faster turnaround of the global economy. Risks, however, remain," it added.
On the foreign trade front, which had taken a beating in 2009, the economic document said it is looking up, with prospects of recovery in global output and trade volumes.
The downside risks for world and Indian trade lie in the fact that though the fall has been arrested, both output and trade recoveries are still fragile, given the fact that the recovery has been pumped up by the fiscal stimulus injected by different countries, including India, the effects of which may dry up if natural recovery does not follow.
Signalling a hardening of interest rates in the industry, ICICI Bank has hiked its deposit rates for select tenures by up to 0.5% with immediate effect
Signalling a hardening of interest rates in the industry, India's largest private sector lender, ICICI Bank Ltd, on Thursday hiked its deposit rates for select tenures by up to 0.5% with immediate effect.
The Bank will now offer 6.75% for deposits having 390-days maturity as against 6.5% earlier, an ICICI Bank spokesperson told PTI in Mumbai.
Similarly, deposits having 590-days maturity will now offer an interest rate of 6.75% as against the earlier rate of 6.25%, the spokesperson said.
The hike in deposit rates comes shortly after another leading private sector lender, HDFC Bank Ltd, recently announced a hike of up to 1.5% in its deposit rates across some maturities.
Earlier this month, the government-owned IDBI Bank Ltd had also hiked its deposit rates by 0.25% for some tenures.
The country's largest lender, State Bank of India (SBI), however, had said that it may not hike deposit or lending rates at least till May-June, as the Bank has surplus liquidity.
"That (rate hike) may not happen till May-June—till the liquidity surplus goes away from the system," SBI chairman OP Bhatt had said.
Banks started hiking their deposit rates apparently due to the tightening of liquidity by the Reserve Bank of India, which asked banks to park more cash in the mandatory reserve window last month.
The central bank hiked its cash reserve ratio (CRR) by 0.75% to 5.75%, sucking out around Rs36,000-crore liquidity from the system.
With ICICI Bank and HDFC Bank taking the lead, more lenders are likely to follow the suit in the coming days.