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New govt could give direct tax stimulus
April, 25th 2009

The new government taking power after ongoing general elections in its first budget slated around July is likely to gift a fresh stimulus package to fan demand in the economy and help it tide over the global economic crisis.

Government sources said until now there has been no alteration in the direct tax or personal income tax structures. This time it could be aimed at rationalising the structure of personal income tax so that consumers are left with more cash in hand.

It all depends on the parties that take centrestage and form the new government but another round of stimulus package could well be chalked out in the forthcoming budget, a senior finance ministry official told Hindustan Times. He also pointed out that the new government would have the flexibility to carve out a bonanza package with the full term being left.

The UPA government has already taken several fiscal steps like duty cuts in the three packages, that it announced to boost demand and keep the growth story on track. However, it has not been able to tinker with the direct tax structure. There would be pressure on the new government to ease direct tax.

The Reserve Bank of India has projected a GDP growth rate of 6 per cent for the current fiscal. The economy needs another stimulus package to boost demand and the new government would have to take note of it, Mahesh Purohit, director, Foundation for Public Economics and Policy Research said.

The new Government must focus on revival of the economy as an immediate measure and also focus on reforms that would sustain and support GDP growth at 9 per cent, Confederation of Indian Industry's director general Chandrajit Banerjee said. 

The three stimulus packages announced since December have also pushed the fiscal deficit to about 8 per cent of GDP, much higher than the targeted 3 per cent as set out by the Fiscal Responsibility and Budget Management Act (FRBMA). Official estimates also suggest that tax collections are set to be significantly lower in 2008-09 than the originally budgeted.

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