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Stimulus exit unlikely in the Union Budget
January, 18th 2010

The Union Budget is unlikely to announce measures to withdraw the economic stimulus package, according to indications from people familiar with the matter.

Prime Minister Manmohan Singh is recently said to have discussed the issue of a partial rollback of the stimulus with finance minister Pranab Mukherjee.

But sources said a rollback is unlikely in the Budget because it would be unpopular at a time when the government is trying to tackle rising food prices.

The ministry of finance is under pressure to reduce the fiscal deficit, which is pegged at 6.8% of the GDP in the current year, and over 10% if off-balance-sheet items are taken into account.

Last month, when queried about the exit, the finance minister had said, Wait till the Budget.

The decibels have been rising against the proposed governmentmove to take away the incentives granted to the industry through 2008 and 2009.

The stimulus package was introduced to help the industry to tackle the impact of the global economic slowdown.

Business chambers, in their interaction with Mukherjee, had pointed out earlier this month that it was not the right time yet to withdraw the economic stimulus.

In a pre-budget deliberation, finance ministers of states also told the Union FM that the stimulus should be phased out gradually, and not in one go.
Prominent economists have also expressed a similar view on withdrawal of the stimulus package.

Economists who met the finance minister recently also said the stimulus should not be withdrawn until the economy has recovered fully. They urged Mukherjee to continue the stimulus, while also trying to consolidate the huge fiscal deficit. Economists have suggested taxing services instead to control the fiscal deficit.

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