New Delhi: The Congress-led UPA government cut factory gate duties and service taxes on Tuesday in an effort to boost demand and revive growth in Asia’s third-largest economy as it reels under the impact of the global economic crisis.
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Warning of tough times ahead, the government, which is heading toward a parliamentary election due by mid May, cut the rate of central excise duty by 2 percentage points to 8% and trimmed the tax rate on services to 10% from 12%.
“I have tried to make certain changes to provide further stimulus to the economy,” finance minister Pranab Mukherjee said while replying to the debate on the interim budget for 2009-10, which was later approved by the lower house of Parliament.
“Even though the signals are encouraging, the full impact of recession in other parts of the world, particularly Asia and Europe, is yet to unfold.
“Due to strong export linkages with these economies it is likely that the Indian economy may feel further impact in coming months.”
But Mukherjee said government was confident of overcoming the impact of the global economic crisis on the domestic economy.
The Indian economy is estimated to grow 7.1% in the current fiscal year which ends in March, slower than the 9% in the previous year and some economists say expansion could slow to below 6% in 2009-10.
The government has already announced two stimulus packages, including $4 billion in extra spending and an earlier 4 percentage point cut in general excise duty.
Along with spending on a pay hike for civil servants and a massive programme to write off the debt of small farmers, the extra spending has helped swell the fiscal deficit to an estimated 6% of gross domestic product in 2008-9.
Analysts say it could widen further.
Mukherjee said banks had been provided with enough liquidity.
The government reduced the excise duty on bulk cement to 8% and extended the customs duty cut on naphtha for power firms beyond 31 March 2009.