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Shome questions FY09 fiscal stimulus

By BS Reporter
February 01, 2013 10:49 IST
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Parthasarathi Shome, advisor to the finance minister, on Thursday raised questions over the extent of stimulus given to industry in 2008-09 in the wake of the collapse of US financial services icon, Lehman Brothers, which deepened the global financial crisis. Stimulus was given in phases after Chidambaram had left the finance ministry to head the home ministry in December 2008.

Shome said the finance ministry would come out with a changed Direct Taxes Code Bill in response to Parliament's standing committee, which had recommended wider tax slabs. "We have given the argument that it (the FY2009 stimulus) was because of the global crisis but I really haven't seen any definitive analysis proving that kind of loosening was essential," Shome said at a seminar organised by the Federation of Indian Chambers of Commerce and Industry here.

He said the Centre had a golden period of fiscal consolidation from about 2003-2004 to 2007-2008, when it consistently followed the Fiscal Responsibility and Budget Management (FRBM) rules.

FRBM mandated the government to cut the fiscal deficit to three per cent of gross domestic product by 2008-09 but the global financial crisis widened it to 5.86 per cent. The revised map of fiscal consolidation has now projected the deficit to come down to three per cent in 2016-17, a full eight years after.

The finance ministry says it will bring down the deficit to 4.8 per cent of GDP during 2013-14 from the 5.3 per cent pegged for this year. The projections for 2013-14 will force the government to tighten its expenditure and raise more resources. On the other hand, the proposed food security law might widen the subsidy burden.

Shome said the finance ministry was addressing the issue of expenditure control and this remained a major challenge. "We are looking into expenditure efficiency. We should do more in terms of efficiency. Issues on the expenditure side are being addressed. Expenditure control is a major challenge and is being addressed by the minister," he said.


He also said the government would come up with a modified Direct Taxes Code (DTC) Bill after incorporating the suggestions of Parliament’s standing committee on finance. Chaired by Bharatiya Janata Party leader Yashwant Sinha, it had in its report (March 2012) suggested raising the annual income exemption tax limit to Rs 300,000 as against the Rs 200,000 proposed in the original Bill. The current tax exemption limit is also Rs 200,000.   

The committee suggested a 10 per cent tax rate on annual income over Rs 300,000 and up to Rs 10 lakh (Rs 1 million), against the current system of over Rs two lakh and up to Rs 5 lakh. It wanted a 20 per cent rate on annual income of over Rs 10 lakh and up to Rs 20 lakh (Rs 2 million) against the current norm of over Rs 5 lakh and up to Rs 10 lakh. And, for a 30 per cent tax rate to kick in over Rs 20 lakh of income in a year, against the present rule of over Rs 10 lakh.

Shome also said the ministry had asked the National Institute of Public Finance and Policy to calculate the impact of the proposed Goods and Services Tax on the gross domestic product.

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BS Reporter in New Delhi
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