Govt takes fiscal risk in package | business | Hindustan Times
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Govt takes fiscal risk in package

business Updated: Dec 07, 2008 21:19 IST
HT Correspondent

The virtual “mini-budget” measures announced on Sunday may have brought cheer to many in India Inc's companies in an otherwise gloomy slowdown scenario, but the package would leave a bigger hole in the government’s books in the current fiscal year.

“Our fiscal deficit will be higher. But that will be a desirable development,” Montek Singh Ahluwalia, deputy chairman, Planning Commission, told a press conference, shortly after the government unveiled the nearly Rs 35,000 crore package to spur growth. “To what extent the fiscal deficit will be higher, we don't have the numbers yet.”

The government had budgeted a central fiscal deficit of 2.5 per cent of the gross domestic product (GDP) in 2008-09.

Finance Secretary Arun Ramanathan said the impact of the four per cent cut in Central VAT (value-added tax) would be Rs.8,700 crore.

The government will also seek parliament’s approval for plan expenditure of another Rs.20,000 crore ($4 billion) in the remaining four months of the fiscal year.

The 10-point package contains incentives for the sectors that have been hit by the global slowdown and recession in the advanced economies.

“The government has been concerned about the impact of the global financial crisis on the Indian economy and a number of steps have been taken to deal with this problem,” an official statement said in New Delhi.

“This is a clear indication that the government is exploring all options to check a further slowdown in the economy, and particularly the across the board cut in Cenvat duty by 4 percent is very welcome,” Chandrajit Banerjee, director-general, CII, said.

While there have been improvement in the fiscal situation in recent years mainly due to significant increase in tax revenues there are also serious fiscal risks arising out of off-budget liabilities on account of fertiliser, food and oil subsidies.