Budget on Friday amid simmering debate on stimulus rollback

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The Economic Survey tabled in Parliament on Thursday suggested that stimulus be withdrawn gradually, since the economy is on the rebound and the growth is broad-based.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.
 

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