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| Upbeat FM sees 8% growth |
| BS Reporters / New Delhi Dec 24, 2009, 00:11 IST |
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Upbeat on higher-than-expected growth rate for 2009-10, Union Finance Minister Pranab Mukherjee today said the continuation or withdrawal of fiscal stimulus to the industry, given to combat the global financial meltdown, would be decided in the Budget for 2010-11 in February.
 Since September 2008, when Lehman Brothers collapsed, the government has given three stimulus packages to aid the industry during the downturn. They were in tandem with the measures taken by the Reserve Bank of India (RBI) to make available more liquidity to the cash-starved economy. “You will have to wait till the Budget,” Mukherjee said at a function organised by PHD Chamber of Commerce and Industry.
Though export was the last sector to show turnaround, Commerce Secretary Rahul Khullar in a separate briefing said there could be withdrawal of stimulus measures for exporters in the Budget, particularly for those who operated in sectors that registered positive growth. “Some of the (stimulus) measures are going to be taken back. There are huge gaps that need to be closed. The sectors that are doing well have to start living without the measures. I might as well give it to those who are still clobbered by weak demand,” Khullar told reporters.
Mukherjee said, “Green shoots (of recovery) are now firmly taking roots. Recent data confirms it.” He expects India’s growth rate for the full year to be between 7.5 and 8 per cent for the ongoing fiscal.
With the economy recording a growth rate of 7.9 per cent in the second quarter ending September 2009 and Mukherjee anticipating 8 per cent growth during the full year, industry fears the government might begin a gradual withdrawal of stimulus. This would be preceded by RBI ending easy monetary policy through an increase in the amount that banks are required to park with the central bank.
Prime Minister’s Economic Advisory Council Chairman C Rangarajan had said this week that RBI could increase interest rates, preferably by reducing liquidity by acting on the cash reserve ratio. His statement came following latest food price inflation figures showing a sharp increase of nearly 20 per cent, the highest in a decade.
A widening fiscal deficit, which is estimated to be 6.8 per cent for the current fiscal is adding on to the expectations that the government will start the process of fiscal consolidation soon. The government’s revenue collections lack the buoyancy witnessed in pre-slowdown phase, mainly due to excise duty and service tax cuts this year.
Khullar also indicated that the finance ministry might pull back some incentives, which were costing the government heavily. “There’s no point in giving subsidy or incentives if it cannot be sustained.” Currently, the commerce and industry ministry is conducting a sector-wise review to ascertain the need to carry on with the stimulus. The secretary said that any decision on stimulus measures would depend on the performance of exports in December.
| EYE ON ECONOMY |
| * GDP recorded at 7.9% in Q2 |
| * FM expects growth rate for full year to be 7.5-8% for ongoing fiscal |
| * Sept 2008: Since Lehman Brothers collapse, govt has given out 3 stimulus packages |
| * Current fears: Govt may slowly withdraw stimulus measures |
| * Reality: Govt talks of continuing stimulus till Budget 2010-11 |
| * Target: Export sector may see first round of stimulus withdrawal |
What makes Khullar’s statement interesting is that he himself has attributed the positive trend in exports to a low base effect.
Exporters, on their part, are against the withdrawal of stimulus since they feel recovery is not sustainable.
A Sakthivel, president, Federation of Indian Export Organisations, recently said, “The sops should continue till the end of 2010-11 as the current scenario is not at all comfortable.”
Exports registered 18.2 per cent positive growth for the first time after 13 months in November, reaching $13.2 billion against $11.2 billion in the same month last year. April-November 2009 figures, however, showed a decline of 22.3 per cent at $104.2 billion from $134.2 billion in the corresponding period of last fiscal.
“The government might look at some tinkering here and there as far as measures for exporters are concerned. They could also withdraw it completely as growth in exports depends on demand in international markets and not on incentives. Even if they withdraw it, the impact on the Budget will not be much,” said N R Bhanumurthy, economist at National Institute for Public Finance and Policy.
Some of the sectors that witnessed positive growth were gems and jewellery, engineering goods, petroleum products, drugs and pharmaceuticals, readymade garments, tobacco, spices and leather.
Significant measures announced by the government for the export sector were extension of interest subvention, additional funds allocation for certain schemes, enhancing duty drawback rates on specific products and abolition of fringe benefit tax. Besides, RBI also increased liquidity to the banks for better credit flow by reducing key policy rates, selling of foreign exchange through banks to augment supply in domestic foreign exchange markets and enhancing the period of pre-shipment and post-shipment rupee export credit by 90 days each.
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