Pranab arrives in Parliament to present Union Budget
February, 26th 2010
Finance Minister Pranab Mukherjee on Friday arrived in Parliament to present the Union Budget 2010-11. He is likely to announce steps to consolidate the governments fiscal position, while also looking at ways to curb rising inflation.
Mukherjee, after tabling the Economic Survey yesterday, had apperead upbeat on Indias growth prospects, but expressed concerns on the widening fiscal deficit. He had also indicated drastic measures were in the offing to trim down public spending.
With the economy recovering on a fast-track, the Finance Minister, will most likely announce some tax hike to roll back the stimulus partially.
The Economic Survey said, "The broad-based nature of the recovery creates scope for a gradual rollback, in due course, of some of the measures undertaken over the last 15 to 18 months."
The stimulus measures were announced last year to support the economy, which was slowing down due to the global financial crisis.
Another key area is reforms. Mukherjee, in his last budget, had proposed several reforms, including the introduction of a new tax code and the Goods and Services Tax and the 3G rollout, besides divestment of public utilities.
Though the government has launched the divestment drive through the IPO and FPO routes, other major reforms are still on the paper. It remains to be seen what Mukherjee is going to say on financial and tax reforms.
According to agency reports, direct tax rates are unlikely to be altered for the time being as the Finance Ministry would prefer to wait for the implementation of Direct Taxes Code, scheduled for 2011-12.
The direct taxes code, which will replace the archaic Income Tax Act, is unlikely to come in the budget session, sources said.
Last week, the Prime Minister's Economic Advisory Council had pitched for raising excise duty to the level of service tax and broadening the service tax net as part of stimulus withdrawal. Currently, excise duty stands at 8 percent and service tax at 10 percent.
However, the industry is of the view that the government should continue with these incentives to ensure high economic growth.
"For a higher growth, the government will have to adopt a calibrated approach and continue with stimulus package for at least another fiscal," Assocham president Swati Piramal said.
Added FICCI president Harsh Pati Singhania: "The government should continue with stimulus measures as the growth in the industrial and export sector is mainly because of this support".
In the wake of global financial meltdown, the Centre has cut excise duties by six percent, service tax by two percent besides stepping up plan expenditure to give Rs 1,86,000 crore to push the country's economic growth.
This has helped economic revival with growth galloping to 7.9 percent in the second quarter of this fiscal against 6.1 per cent in the previous quarter and 5.8 percent each in the preceding two quarters. This year, the growth is pegged at 7.2 percent against last year's 6.7 percent.
However, this also widened fiscal deficit to 6.2 percent of GDP during 2008-09 from budget estimates of 2.5 per cent.
The fiscal deficit is projected to widen to 6.8 percent in the current fiscal.