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| No place for fresh fiscal stimulus in reforms package |
| A K Bhattacharya / New Delhi May 22, 2009, 00:12 IST |
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The policy action plan being prepared for the new government does not see the immediate need for a fresh fiscal stimulus package, but recommends a new oil pricing formula and disinvestment of government equity in public sector undertakings in small doses.
The action plan is being finalised by the Cabinet Secretariat for presentation to Manmohan Singh after he is sworn in as the prime minister for a fresh term on Friday.
The action plan is an outcome of a series of meetings the Cabinet Secretariat has held with secretaries of important ministries in the last few days.
Singh may fine-tune the proposals in the action plan document and include these in the address to the nation he is likely to deliver a few days after he is sworn in.
The finance ministry’s input for the action plan pertains to two key areas: the need for a fresh fiscal stimulus package and disinvestment of government equity in public sector undertakings (PSUs). Taking note of the fiscal stimulus measures the government has already taken and the positive impulses these have created, the finance ministry has opined that there is no immediate need for further tax give-aways. The Cabinet Secretariat is also believed to have concurred with this view.
Instead of a fiscal stimulus package, there is now consensus on the need for policy interventions in key sectors of the economy like infrastructure, so that the growth momentum is accelerated.
The Interim Budget presented by Finance Minister Pranab Mukherjee on February 16 had indicated that a fresh fiscal stimulus package might be considered by the new government when the regular budget was presented. However, while replying to the debate on the Interim Budget, Mukherjee had announced a two percentage point cut in the Cenvat and service tax rates, which amounted to a total tax give-away of Rs 30,000 crore in a full financial year, or a little more than half a percentage point of gross domestic product (GDP).
This was in addition to tax cuts and depreciation rate changes announced by the government earlier, entailing an annual revenue loss of over Rs 20,000 crore.
On the disinvestment front, the action plan does not favour any strategic sale of PSUs. The Congress election manifesto is also opposed to privatisation. In view of this, the action plan has proposed disinvestment in only those PSUs in which the government stake is well above 51 per cent. The objective is not to bring down government stake in any PSU below 51 per cent. The proceeds from such disinvestment will help the government meet its resource gap, which may widen because revenue collections have been poor with slower economic growth.
The petroleum and natural gas ministry’s proposal is to allow oil marketing companies limited freedom to revise oil product prices. The action plan suggests that the new government’s policy should set a floor and a ceiling for international crude oil prices. Oil companies will be free to raise or lower their retail prices if the international crude oil prices cross the ceiling or fall below the floor set by the government.
The plan also favours a fresh look at food and fertiliser subsidies. It supports massive investments in urban transportation. It also points out that a long list of policy actions has been pending for the last few months because the government had gone into election mode. The immediate priority for the new government should be to address those issues.
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