The Confederation of Indian Industry (CII) and Aditya Birla group Chairman Kumar Mangalam Birla on Friday pitched for an expansionary fiscal policy to pull the economy out of slowdown.
In a pre-Budget interaction with Revenue Secretary A B Pandey, a CII delegation recommended widening the fiscal deficit by 0.5-0.75 percentage points from the target, which will give the government additional fiscal space of about Rs 1.1 trillion to Rs 1.6 trillion.
Birla said at another event: “The best way to get out of it (slowdown) is only through a fiscal stimulus. If the GST (goods and services tax) rate is brought down to 15 per cent, that would be a huge stimulus We can’t come out of this through a consumption story because as of now, people don’t want to spend more (as) incomes are low. You have unemployment happening.”
The fiscal deficit target for the year is 3.3 per cent. This additional fiscal space should be used for investing in capex, particularly in infrastructure, the CII said.
There should be a glide path to return to the targets given by the fiscal responsibility and budget management (FRBM) panel over a period of two-three years, the CII said. Birla said fiscal prudence should be shown in business but a fiscal policy was required in the year of slowdown.
“I think we are nearing the bottom ... I don’t see credit growth to large companies picking up anytime soon. Most are still getting large debts on their balance sheets, which I think they need to lop off. I also think there is a case for the government to give greater fiscal stimulus to the economy. Anyway the FRBM Act provides half a per cent deviation,” Birla said.
The Centre’s fiscal deficit has crossed the Budget FY20 projection of Rs 7.04 trillion by October itself. The fiscal framework papers, laid along with the Budget, estimated the deficit at 3 per cent of GDP in FY21 and FY22.
The Reserve Bank of India (RBI) on Thursday cut the growth projection for the fiscal year to 5 per cent from 6.1 per cent earlier, on the back of weak domestic and external demand. The government on September 20 had announced lowering the corporation tax rate to 22 per cent from 30 per cent for companies that did not seek exemption, and reduced the rate for some new manufacturing companies to 15 per cent from 25 per cent.
Including surcharges and cess (levies to raise funds for specific purposes), the effective corporate tax rate will drop by nearly 10 percentage points to 25.2 per cent.
The corporation tax rate cuts followed other measures by the government to prop up growth. These include efforts to reduce red tape and boost foreign direct investment (FDI), and consolidating state-owned banks.
“Tax cuts are always welcome. If the government decides to give us more tax breaks, that will be most welcome. They increase our cash flows; give us more elbow room to grow. The government has done a lot. I am not taking that away,” Birla said.
He said some companies would like to use the package to repay debt and some would like to use it for capacity expansion. Birla did not make much of the view that the push to consumer spending by way of cuts in income tax rates would help the economy.