Finance Minister Pranab Mukherjee on Friday said a schedule for rolling back the tax breaks announced last year to help the economy tide over the ripple of worldwide recession would depend on the domestic economy’s growth in the coming months.
Besides, the country’s most ambitious tax reform initiative—a comprehensive nationwide uniform goods and services tax (GST)—might miss its April 1, 2010 deadline as some contentious issues remain to be sorted out.
“I will present my views on the exit policy on fiscal stimulus packages at the G20 meeting next Saturday,” Mukherjee (74) said at the annual Hindustan Times Leadership Summit.
Finance ministers of G-20, the group of world’s richest nations, would meet at St Andrews, Scotland over the next weekend to discuss issues of a global financial regulatory architecture and economic growth.
“I will have to watch the situation of progress in the second and third quarters after which I may be in a position to take a call,” he said while addressing a session on ‘Reviving India’s economy: critical factors.’
The country’s gross domestic product (GDP) for April to June quarter grew 6.1 per cent, up from 5.8 per cent in the previous quarter, but the spectre of a drought this year has muted cheers.
The prime minister’s economic advisory council has projected that farm output would contract by 2 per cent this year, a view echoed by the finance minister as well.
On the proposed GST, which is envisaged to be a comprehensive value added tax on goods and services, Mukherjee said consensus eluded among states on some areas.
“In large areas we have been able to arrive at convergence of views. Constitutional amendments are required (for rolling out GST). I am trying to stick to the time schedule, but there could be some slippages,” he said.
The indirect tax system is mired in a multi-layered structure that includes levies such as excise duty, central sales tax, VAT and service tax among others. In its final form, GST is expected to remove these distortions as all the existing taxes will be subsumed under a singular regime.
Macroeconomic policy makers are currently grappling for options to sustain high growth amid rising government debt burden.
Mukherjee said return to a 9 per cent growth rate would critically depend on the performance of the farm sector.
“In order to achieve 9 per cent, the agriculture sector growth should not be less than 3.5 per cent,” Mukherjee said.
Mukherjee exuded optimism that the Indian economy would return to a 9 per cent plus growth trajectory in around two years.
Fiscal consolidation and inclusive growth were two of most the critical concerns of the government, he said.
The government is staring at a precariously high debt burden that would balloon the fiscal deficit for 2009-10 to 6.8 per cent.
“I want to come back to 5.5 per cent fiscal deficit in 2011-12 and to 4 per cent after that,” he said.
Mukherjee said that India’s recovery would follow a similar pattern to the trends in the global economy, especially for the export sector, which has contracted for 11 consecutive months as demand for goods dried out from the major economies such as the US and the EU.
The finance minister underlined the need for a better security environment to foster growth and the economic reforms process would have to be taken to its “logical conclusion” through a broad-based political consensus.