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Phased rollback of stimulus package is good

business Updated: Feb 27, 2010 00:51 IST

Considering the recessionary trend in 2008-09, the government provided the most needed stimulus to industry by reducing the rates of central excise duty by 4 percentage points across a large number of commodities in 2008 end, followed by a further reduction by 2 percentage points in the mean rate in February 2009. It also slashed service tax rates from 12 per cent to 10 per cent. Thus, a cut in excise duty to the extent of 40 per cent of the then prevailing rates was introduced to arrest the sagging demand and bring turnaround.

Budget 2010 undertook a calibrated rollback of the rate cuts made by the stimulus package. Several commodities under the 4 per cent effective rate have been taken to 8 per cent bracket. The sectors affected by this hike include man-made textiles, PTA and DMT, polyester chips, ceramic tiles, plywood, writing ink, zip fasteners and certain audio players like MP3 players. The 4 per cent effective rate for specified food items such as biscuits, medicines, cheaper footwear, bulbs, paper and paperboard, pressure cookers, power driven water pumps, medical equipment and cars for physically handicapped persons was retained. Full exemption was extended to goods manufactured at the site of construction for the use at such site and branded articles of jewellery.

The stimulus package announced in December 2008 was reasonably effective to counter the fallout of global economic slowdown on Indian economy. However, the industry has not fully recovered yet. Hence, a full roll back of the stimulus made earlier would not be in the interest of economy.

The Economic Survey states that the economy has bounced back from the global slowdown and is on its way on the 9 per cent growth path. The turnaround came in the second quarter of 2009-10 when the economy grew by 7.9 per cent. The recovery is particularly impressive despite a decline of 0.2 per cent in the agriculture output primarily due to sub-normal monsoon. The Survey says that the recovery was broadbased with seven out of eight sectors showing a growth rate of 6.5 per cent or higher and creates scope for a roll back of some of the measures undertaken over the last 15-18 months to put the economy back on the growth path of 9 per cent.

In the budget, the finance minister proposed partial roll back of excise duty from 8 per cent to 10 per cent in respect of certain categories of fabrics, man-made filament & fibres, certain pharmaceutical products, plain gold & silver jewellery, HSD & LSD, information technology software, articles of wood, paper & paper board, articles of mica and building blocks. It is also proposed to increase excise duty on cigarettes and non-smoking tobacco such as scented and chewing tobacco. The estimated revenue gain on account of this roll back is Rs 43,500 crore. The service tax rates have been maintained at 10 per cent, which would help in convergence to GST.

The author is chairman, BDO India