Fiscal stimulus: Centre trying to effect rebound in demand
-------------------------------------------------------------------------------- Agricultural loan waiver and increasing subsidies have led to under-investment in capital projects. -------------------------------------------------------------------------------- G. Srinivasan New Delhi, Dec. 13 With the UPA Government working on a second stimulus package after it unfurled the first last Sunday, fiscal fetishism no longer holds water in troubled times like this, despite the passage of the Fiscal Responsibility and Budget Management (FRBM) Act a couple of years ago to eliminate revenue deficit by the end of this fiscal and to bring down fiscal deficit to 3 per cent of gross domestic product (GDP). That the UPA government is going with the wind like reeds in order to effect a rebound in demand to address the ill-effects of a slowing economy is by now quite clear. The former Finance Minister and Home Minister, Mr P. Chidambaram, who is assisting the Prime Minister in finance-related questions in Parliament, gave the strongest signal in this direction when he said "this is not the year for the country to worry about fiscal deficit". Lest his remarks on FRBM Act should be misread and as CPI-M member, Mr Roophchand Pal, sought amendments to FRBM Act to undertake massive public expenditure to shore up the sagging economy, Mr Chidambaram rightly said that the targets in the FRBM Act had helped the government to streamline expenditure and led to fiscal discipline and the government would inform Parliament if the FRBM targets are breached. But it is anybody's knowledge that the type of expenditure management the UPA government set in motion by generously-funded programmes like agricultural loan waiver and even increasing subsidies on food, fertilisers and fuel in the wake of sustained rise in their global prices had led to under-investment in capital projects that would help in generating enduring assets, income and long-term employment in the economy. In the long haul In fact, additional government borrowing during this fiscal flowing from its resolve to help bailout distressed industries through selective tax cuts and other sops, over and above those outlined in the budget's market borrowing programme, might undoubtedly increase resource availability in the short-run. But over the long haul they escalate the outstanding debt and hence the interest burden of the Centre. In the short-run, too much borrowing by the government would also crowd out private investment even as the apex bank has loosened monetary tools to make lend-able resources available across the board for both firms and consumers. This also defeats the objective of achieving credit delivery efficiently. Although fiscal stimulus the world over is meant to be 'timely, temporary and well-targeted', in India the delivery of public-funded programmes suffer a lot of deficiencies including leakage and wastage, and unless this is addressed effectively, large amount of funds would not make any difference to the deteriorating situation. Moreover, in the first round of stimulus, it is only the automobile sector slashing prices in thousands of rupees that is widely reported, though the four percentage point excise duty cuts applied to across products and industries. Either the effect of the excise duty cut on sale price is too minuscule or the manufacturers do not find it expedient to pass on the benefits to end-users, operating as they are under the high-cost economy. Policy analysts fear that both industrial production and import-related export production are not going to do well or might even suffer a serious jolt in the second half of the current fiscal, as both industrial production and export figures of October, the latest month available, clearly corroborated. Then, how higher tax revenues could be ensured is open to question. Tax performance Already figures furnished in the Lok Sabha on Friday by the Minister of State for Finance, Mr Palanimanickam, show that in the case of direct taxes, against the full year target of Rs 3.65 lakh crore, the revenue department gleaned only Rs 1.77 lakh crore in April-October 2008. In the case of indirect taxes, against the target of Rs 3.20 lakh crore, the performance during the first seven months of the fiscal was only Rs 1.63 lakh crore, leaving the bulk of realisation from customs duties and central excise duty to come in the second half when precisely both industry and exports (import-intensive) are going to show negative trends. With revenue realisation not up to expectations and the government going on a borrowing binge to stoke demand to keep the wheels of the economy moving, the results at the end of the fiscal year or for the new government when it assumes in the beginning months of the next fiscal would be too daunting and glaring to gloss over. It may not be the best of time to talk about concern for deficit now but there is a virtue in remembering that fiscal rectitude or conscious cut in wasteful expenditure to conserve resources for productive purposes is not an altogether archaic proposition. http://www.thehindubusinessline.com/2008/12/16/stories/2008121650080900.htm Government cannot make man richer, but it can make him poorer --~--~---------~--~----~------------~-------~--~----~ You received this message because you are subscribed to the Google Groups "Kences1" group. To post to this group, send email to [email protected] To unsubscribe from this group, send email to [email protected] For more options, visit this group at http://groups.google.com/group/kences1?hl=en -~----------~----~----~----~------~----~------~--~---
