The sharp turnaround in the Indian economy offers scope for the government to commence a withdrawal of the fiscal incentives announced in the last two years to the counter the economic downturn, the government’s annual Economic Survey for 2009-10 said on Thursday.
“The broad-based nature of the recovery creates scope for a gradual rollback…of some of the measures undertaken over the last 15 to 18 months,” the survey said.
Economists said the slew of recent data is likely to encourage the Centre to roll back some of the stimulus measures in the budget for 2010-11.
“The underlying recovery is becoming stronger and offers the scope to partially reverse the excise duty cut,” said Rajeev Malik, Head, India and ASEAN Economics, Macquarie Securities Group.
The government had announced a 6 percentage point cut in excise duty to 8 per cent for most goods through 2008 and 2009 to help companies ride out the world economy’s worst crisis in 80 years.
The Centre and the Reserve Bank of India had announced a series of measures including tax breaks in many products and interest rate cuts to help companies stay afloat with the help of cheaper loans and better cash flows.
Many of these measures, however, have left gaping hole in public finances, forcing the government to borrow a record Rs 4 lakh crore.
The survey said the recommendations of the 13th finance commission should be taken on board in shaping the fiscal policy for 2010-11.
The commission has recommended a calibrate exit from the expansionary fiscal stance of 2008-09 and 2009-10.
The economy had slowed to 6.7 per cent in 2008-09 after growing at close to 9 per cent for four straight years before a financial crisis in the United States roiled the global economy and has since clawed back to an anticipated 7.2 per cent in the current year.
The Prime Minister’s Economic Advisory Council (PMEAC) headed by former RBI governor C.Rangarajan, in a report last week has also said there was a need to strike a balance between growth and fiscal deficit.
While strident calls have been growing within the government for an end to the stimulus package, private sector lobbies have been urging the government not to hurry, saying it could choke an incipient revival.
The challenge before the government is to ensure that the growth momentum is sustained even as it battles high inflation that worries conservative economists.