Stimulus III will concentrate on execution rather than bring in new sops says Dr. Montek Singh Ahluwalia, deputy chairman planning commission, categorically ruling out any further tax cuts. "Taxes will not be altered between now and the next budget," he said.
The next regular budget is likely to be presented sometime in July. There will be an interim budget and a vote-on-account in February to complete the essential business in view of the forthcoming Lok Sabha elections.
The government, Ahluwalia said, would have to actively use both monetary and fiscal policies in the coming fiscal to boost growth, which is expected to come down to around 7 per cent from 9 per cent in the previous fiscal.
The most important thing is to implement the stimulus package that has been announced. Merely announcing the package the expenditure does not start flowing. In the next two months implementation has to be the top priority.
Dr. Ahluwalia, addressing the Valedictory Session of CII Partnership Summit 2009, said that, the present crises cannot and should not be compared to the 'Great Depression'. He said, "the effect of global crises has been far beyond than was expected and unlike the case of great depression, the industrialized countries have now realized the importance of fiscal stimulus."
He added that concerted efforts towards fiscal stimulus are being made around the world. Dr. Ahluwalia warned that the year 2009 would be difficult. He further said that economic revival was the top priority for the Indian government as of date. He was hopeful that towards the end of the year things would look up.
Sops that need implementation
The government had taken a number of steps since 7 October 2008 to minimise the impact of the global financial crisis on the Indian economy. These included:
- Additional plan expenditure of up to Rs20,000 crore in the current year, mainly for critical rural, infrastructure and social security schemes such as Pradhan Mantri Gram Sadak Yojana (PMGSY), Jawaharlal Nehru National Urban Renewal Mission (JNNURM), National Rural Employment Guarantee Scheme (NREGS), Indira Awas Yojana, Accelerated Irrigation Benefit Programme and National Social Assistance Programme (NSAP).
- An across-the-board cut of 4 per cent in ad-valorem Central value-added tax (CENVAT) rate except for petroleum products in the first stimulus package.
- The Reserve Bank of India and the government had announced several other measures to support exports, housing, micro, small and medium enterprises (MSME) and the textile sectors.
- The government had also authorising India Infrastructure Finance Company Limited (IIFCL) to raise Rs10,000 crore to refinance bank lending for infrastructure projects.
- Other measures have also been taken such as removal of ban on export of cement.
- The second stimulus package announced on 3 January was aimed at better liquidity. In order to further ease liquidity and credit flow, the Reserve Bank of India had reduced the repo rate under the liquidity adjustment facility (LAF) by 100 basis points from 6.5 per cent to 5.5 per cent. It also reduced the reverse repo rate by 100 basis points from 5.0 per cent to 4.0 per cent with immediate effect.
- RBI also announced a reduction in the cash reserve ratio (CRR) of scheduled banks by 50 basis points from 5.5 per cent to 5.0 per cent from the fortnight beginning 17 January 2009.
- The reduction in the CRR is expected to inject additional liquidity of around Rs20,000 crore into the financial system