Latest Expert Exchange Queries
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Service Tax | Sales Tax | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Indirect Tax | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing
Popular Search: VAT RATES :: due date for vat payment :: form 3cd :: TDS :: articles on VAT and GST in India :: list of goods taxed at 4% :: ACCOUNTING STANDARDS :: ACCOUNTING STANDARD :: TAX RATES - GOODS TAXABLE @ 4% :: ARTICLES ON INPUT TAX CREDIT IN VAT :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: Central Excise rule to resale the machines to a new company :: VAT Audit :: cpt :: empanelment
« News Headlines »
 CBDT issues second round of Certificates of Appreciation to tax payers for their contribution towards Nation building
 FinMin looks at cut in corporation tax
 Draft Rules for prescribing the method of valuation of fair market value in respect of the trust or the institution-Chapter XII-EB of the Income-tax Act, 1961- reg.
 India is moving towards a flawed GST
 ICAI to organise two-day international conference in Hyderabad
 Here's how to calculate tax payable on your capital gains
 Income Tax calculations for the financial year 2016-17
 CPE Events 17 October - 22 October 2016
 High Court raps I-T Department for wrong tax demand
  CBDT signs 5 advance pricing pacts with Indian taxpayers
 Finance ministry warns tax officials of action against GST protest

Absence of direct fiscal measure in package
January, 12th 2009

The Governments latest stimulus package announced on January 2 has not met the high expectations it had raised. In fact, it suffers in comparison even with the earlier package announced on December 7, 2008.

For, among the earlier set of measures was a provision for an additional Plan expenditure of Rs. 20,000 crore to be utilised before March 31, 2009 for rural infrastructure and social security schemes such as the Jawaharlal Nehru National Urban Renewal Mission and the National Rural Employment Guarantee Scheme. It had also included a 4 per cent across-the-board reduction in the CENVAT (except for petroleum products). Along with tax revenue foregone, the December package was estimated to cost Rs. 30,000 crore.

In the more recent package, there is no provision for direct plan expenditure. Nor is there a reduction in indirect taxes. The absence of direct fiscal measures is one of the main reasons why the recent package suffers even in comparison with the first. But there are other reasons why both the stimulus packages have disappointed.

The government has been constrained by its fiscal position. The supplementary budget of October and December pre-empted the space for more liberal spending to stimulate the economy. Bulk of the large appropriations made then were for non-productive expenditure such as for meeting salary hikes and petroleum and other subsidies. Taking the off-budget items (oil, fertilizer bonds and so on) the size of the fiscal deficit of the Centre and the States is estimated to rise to 10 per cent of the GDP.

The government claimed that such a large expenditure would have the same contra cyclical effects as the measures outlined in the two packages. However, the fact remains that fiscal management over the recent past when the economy was growing fast did not proactively provide for the lean years. Fiscal responses to the economic slowdown, out of necessity, have been muted. Already the economic slowdown has resulted in lower tax collections.
Reduced say for RBI?

That has also meant that the government will lean even more heavily on the RBI. One of the invidious consequences has been that for all practical purposes the Union Finance Ministry seems to have usurped the central banks role in monetary management. While on both occasions December 7, 2008, and January 2, 2009, the RBI and the government issued two separate statements on the stimulus packages, it is the Finance Ministry which seemed to be dictating the agenda. Even if one were to concede the argument that an exceptional situation like the present calls for a high degree of co-ordination, it is not clear whether the RBI would have followed an identical course without any prodding by the government.

In the event, since mid-September the RBI has effected sweeping cuts in the policy as well as statutory rates, with some of these announcements coinciding with the stimulus packages. The repo rate has been reduced from 9 per cent to 5.5 per cent and the reverse repo from 6 per cent to 4 per cent. The CRR has been brought down from 9 per cent to 5 per cent. These are exceptional measures but are they necessary? More pertinently, can they take the place of larger public spending?

The problem in India and in many other countries including the U.K. is not availability of money with the banks but persuading them to lend. The RBI has admitted that that risk management, difficult even in normal times, is even more difficult in an environment of uncertainty and downturn.

Risk aversion is something that is not alien to public sector banking. Peculiar constraints faced by government owned banks have prevented their officers from taking commercial risks. It is difficult to see how in these recessionary conditions they can be persuaded to lend aggressively.
Big task for ministries

In fact a similar set of inhibitions might crimple the efforts of the ministries to complete their budgeted spending before the year end. Ultimately, therefore, for the stimulus packages to have an impact the quality of governance in Indias public sector should improve substantially.

An area that has received plenty of attention is infrastructure. In China, large public spending for infrastructure projects is at the core of their efforts to counter the slowdown. In India, measures to stimulate lending to this vital area include allowing India Infrastructure Finance Company to raise another Rs. 30,000 crore by way of tax free bonds, over and above the Rs. 10,000 crore authorised in December. NBFCs dealing exclusively with infrastructure financing would be permitted freer access to external commercial borrowings (ECB).

Enabling financial institutions to mobilise resources is but one important part of the process of promoting infrastructure. Equally important is to have appropriate policies in place for each infrastructure area.

Several bank chairmen say that there is a shortage of bankable infrastructure projects. Finding money will not be a problem.

The government has said that there will be no more fiscal stimulus packages for the rest of the year. The reliance on monetary measures can therefore be expected to continue.

Home | About Us | Terms and Conditions | Contact Us
Copyright 2016 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Binarysoft Technologies - Achievements

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions