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Recovery not enough to  justify stimulus rollback

Recovery not enough to  justify stimulus rollback
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First Published: Tue, Feb 16 2010. 10 04 PM IST

Other concerns: Aditya Birla Group’s D.D. Rathi
Other concerns: Aditya Birla Group’s D.D. Rathi
Updated: Tue, Feb 16 2010. 10 04 PM IST
Mumbai: India has recovered well from the global economic slowdown, but not well enough to allow the government the luxury of withdrawing the stimulus package it had rolled out for the corporate sector, D.D. Rathi, executive president of the Aditya Birla Group, said in an interview.
He maintained that the growth momentum is crucial and any rollback should be well phased out.
Other concerns: Aditya Birla Group’s D.D. Rathi
A return of the taxes that were curtailed by the stimulus package would add to companies’ costs and may exacerbate the inflation the economy is facing, he added.
Rathi also emphasized the need to push infrastructure development through the Budget finance minister Pranab Mukherjee will deliver on 26 February. Edited excerpts:
The Central Statistical Organisation has pegged gross domestic product growth for the fiscal ending 31 March at 7.2%, while Index of Industrial Production figures are at a 16-year high. How are you reading India’s recovery from the downturn?
This recovery is reasonable. I wouldn’t call it a very strong recovery, but I also wouldn’t attach great significance that estimates have come down from 7.5% to 7.2%. After all, estimates are estimates.
Anyway, in the current scenario, where most of the economies are looking long term, if you register 7.2% average growth, and obviously the exit rate of growth will be higher than this.
There is a fair amount of growth, but all the same it is not very well-established, deep, influenced growth... I will call it... somewhat fragile in its nature... We need to have some more signals before we say that now we are on a strong recovery path.
Do you think the government should withdraw the fiscal stimulus? How much room does it have, considering the inflation and fiscal deficit?
Control of inflation is important. Fiscal deficit correction is very important. Equally important is to maintain the momentum of growth in the given scenario when everything is right for the growth momentum.
So I think the solution lies in government taking very calibrated measure. It should be seamless and not sudden, and perhaps it should be well phased out...I am more concerned with the fiscal incentive, that is, if you add back the taxes or rollback the tax reductions which you have made available, you may end up increasing the prices.
After all, when the cost of input will go up, cost of end-products will (also) go up and that would be inflation. So it is the big challenge for the government to balance the act.
Secondly, possibly if it comes with an assurance that even if the measures are withdrawn to some extent and in phased manner, the government will be very open to reintroduce the measures, so give back the stimulus as required. I think that seems to be the compromise formula to my mind.
Do you think the government will opt for a major tax tweaking?
I don’t expect any significant changes because when you are talking major policy reforms in direct taxes or indirect taxes, I think major tinkering in the tax laws may not be either necessary or desirable as well.
The key issue is what the government could do in the interim. There is no case for raising the tax rates, whether it is direct tax or indirect tax. There is a fit case for withdrawal of surcharge in case of corporates which was held back last year and it should not be. There is definitely a scope for giving more incentive to savings, individual savings.
What is the reform agenda that you would like to see?
When you talk of reforms, (what) first and foremost comes to my mind is infrastructure. There is a great need to develop infrastructure. If we are far behind in anything, that would be infrastructure.
You cannot think of economic growth or the type of growth we are contemplating or rather the government is contemplating unless infrastructure is built.
By infrastructure, I don’t mean merely the fiscal infrastructure. The government also has to, and I am sure, will focus on social reforms. That is health and medical, education and training.
Third reform will be legal reforms, and it is a big agenda before the government. You have DTC (direct tax code) on the cards, you have GST (goods and services tax), which is to be executed and implemented and which has been deferred for quite some time now.
Then you have new Companies Bill, you have new accounting standards... I will call them a new law only because they will rewrite the way you will present your financial statements. That is a challenge not only for the government but also for the corporates.
So I would expect the government—and I am sure that will happen—to ensure a very smooth transition to a new set of laws and which the government itself calls second generation laws, which will hold value for decades.
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First Published: Tue, Feb 16 2010. 10 04 PM IST