With less than a fortnight to go for the Budget, tax experts urged Finance Minister Pranab Mukherjee to bite the bullet and roll back stimulus, a suggestion which did not find favour with the India Inc.
Describing stimulus as a 'short-term life support' measure, global consultancy firm KPMG executive director Vikas Vasal said, "(They) cannot continue forever. This is one area where timing may never be considered right; however, somewhere down the line the government has to bite the bullet."
However, making a case for the continuation of stimulus, India's apex industry chamber FICCI president Harsh Pati Singhani said the economy is still not out of woods and will continue to need government support for some more time.
"We would expect the continuation of stimulus packages for another year or at least six months till October 1. This, in our view will considerably help us in improving the economy further," he added.
Following the global financial crisis, which was triggered by the collapse of Lehman Brothers in September 2008, the government provided three stimulus packages to the industry entailing a revenue sacrifice of Rs 1.86 lakh crore (Rs 1.86 trillion).
The stimulus, which include steps like slashing taxes rates and raising public expenditure, is slated to push up fiscal deficit to 6.8 per cent of the GDP in 2009-10 from 6.2 per cent a year ago. Mukherjee will be required to take steps to contain fiscal deficit when he unveils the Budget for 2010-11 on February 26.
While expressing concern over the rising fiscal deficit, CII director general Chandrajit Banerjee said "(Withdrawal of stimulus) It should not be done by risking economic recovery."
However, another global consulting firm Ernst & Young, tax market leader Sudhir Kapadia, made a case for partial withdrawal of stimulus packages by suggesting that Excise duty rates be brought back to pre-stimulus levels.
"The finance minister may be forced to consider partial withdrawal of stimulus in the forthcoming budget. . . more specifically, he might consider reinstating the Excise duty cuts to the pre-stimulus levels of December 2008," he added.
Mukherjee, Kapadia said, was not expected to cut spending on social sectors to reduce fiscal deficit, which is reaching unsustainable levels.
Pointing out that the Indian economy is not insulated from the global economy, PHDCCI president Ashok Kajaria said there are many areas which would need attention of the finance minister in the upcoming Budget.
"Unless the economic fundamentals are strong, investors will not have confidence in stock market. It is more important that the government's policy framework takes care of economic fundamentals and sustain growth momentum," he added.
"The economic activity," Vasal argued, "has shown positive movement compared with last year. Therefore, it is likely that government might take some steps to reduce the fiscal deficit in a phased manner."
The Reserve Bank of India, he added, had already taken steps heralding first phase of exit of easy money policy that it launched since September 2008 to help the cash-starved industry.
