No room for direct stimulus, says Pranab

Hoping the Indian economy would perform a bit better in the second half than yielding just the 7.3 per cent growth in the first six months of this financial year, Finance Minister Pranab Mukherjee on Friday pegged gross domestic product (GDP) expansion at 7.5 per cent for the full year. This would be the lowest in three years.

India Inc expects the economy to perform worse than the first half but is unlikely to get any direct stimulus, as the government’s resources do not permit it. However, companies can expect certain policy changes that may boost the investment environment, Mukherjee hinted while speaking at the Hindustan Times Leadership Summit.

Though he expects to meet the Union Budget’s fiscal deficit target, of 4.6 per cent of GDP, Planning Commission Deputy Chairman Montek Singh Ahluwalia believed the deficit would exceed this estimate. “In a way, that would be the stimulus,” Ahluwalia said.

In the first seven months of the current financial year, the fiscal deficit had cumulated to 74 per cent of the Budgeted total for the year. In the first half, it had reached 6.7 per cent of GDP. The economy grew by a nine-quarter low of 6.9 per cent in July-September; with 7.7 per cent in the first quarter, this fetched a 7.3 per cent economic expansion in the first half.

“Going forward, I am confident that we will be recovering some of the loss in our growth momentum and may end the year around 7.5 per cent,” the finance minister said. Budget projections for the economy were nine per cent, successively lowered with passage of time.

Others in the government such as Chief Statistician T C A Anant and the Prime Minister’s Economic Advisory Council Chairman, C Rangarajan, pegged the growth at a little over 7.5 per cent.

“I am not in a position to provide the same level of fiscal stimulus package that I had provided in 2008 and 2009, but certain policy changes can improve the situation a little bit,” Mukherjee said in reply to a query at the conference.

Industry wants the government to act to dispel the notion of policy paralysis and be firm on its plans to open multi-brand retail for 51 per cent foreign direct investment, as well as raising the FDI limit in single-brand retail to 100 per cent from the current 51 per cent. However, they also want the government to build a consensus around the policy.

At the time of the global financial crisis, the government started giving a stimulus to industry in phases, from December 2008. It cut excise duty by six percentage points, service tax by two percentage points and stepped up public expenditure. The stimulus package totalled Rs 1.86 lakh crore, which led to a deterioration in the fiscal deficit in 2008-09.

While the original plan was to keep the deficit at three per cent of GDP in 2008-09, it was over six per cent. The government had then partially rolled this stimulus, by raising excise duty two percentage points in the budget for 2010-11.

“I don’t think it (slowdown) has happened because of lack of stimulus...What is the case for stimulus? In a sense, there is going to be a stimulus because the deficit will be exceeded,” Ahluwalia said.