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Stimulus exit under threat

business Updated: Jan 09, 2011 21:44 IST
HT Correspondent
HT Correspondent
Hindustan Times
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The runaway price line has upset the government’s plans of a carefully calibrated exit plan of the fiscal stimulus package in this year’s budget.

Originally, the government had planned a two percentage point hike from 10 to 12 % in central excise duty on 90% of the manufactured goods in this year’s budget.

“The plan was to fully withdraw the stimulus when the recovery in private demand — both consumption and investment — is sufficiently robust. While these have been achieved, high prices are a key concern. This may force the government to push back the planned increase in excise duty,” an official said.

If it had gone through, this would have marked the second phase of the rollback of the fiscal sops announced through 2008 and 2009 to counter the fallout of the world economy’s worst downturn in 80 years.

Food prices rose 18.32% in end-December to reach the highest level in a year and have remained stubbornly high. The conflagration has also spread to core inflation, or the price of goods other than food and fuel.

Last year, the government had announced a two percentage point hike in excise duty for most manufactured goods, but raising it further would push up prices of products — not considered prudent in a fast worsening inflationary situation.
Maintaining the excise duty at 10%, carries the risk of pushing back the medium term fiscal consolidation targets and not achieving a fiscal deficit to 4.8% of GDP as originally estimated

“With the prevailing trends in revenues and expenditures, the target for the fiscal deficit of 5.5% of GDP would be expected to be met, but meeting next year’s target would also depend on raising the indirect tax collections,” an official said.