New Delhi: Faced with an extraordinary circumstances following global financial meltdown, the Government is likely to focus on labour intensive and export oriented sectors in its interim Budget on 16 February to protect jobs.
The interim Budget to be presented by external affairs minister Pranab Mukherjee, who is currently holding the charge of finance portfolio, may not contain any major policy decision, but it could cut certain indirect taxes to address the urgent concerns to arrest economic slowdown.
“Alleviating job losses should be the government’s priority. Demand for exports has gone down, so sectors like gems and jewellery, textiles etc need to be revived so that more jobs can be created,” Prime Minister’s Economic Advisory Council chairman Suresh Tendulkar said.
Tendulkar further said that fiscal space of the centre is limited due to growing subsidies adding that public expenditure has also increased.
Crisil principal economist D K Joshi said indirect taxes may be slashed in the interim budget, but he does not expect any cut in the direct tax.
Joshi said construction, automobiles and export oriented sectors might get some benefit from the budget.
Yes Bank chief economist Shubhada Rao also said the government could cut tax rates to provide stimulus to the economy reeling under the impact of global financial meltdown.
She said sectors like housing, exports, SME and auto should be promoted by measures in the interim budget.
Tendulkar said RBI will decide on signalling cut in interest rates after the vote on account is tabled.
“RBI is awaiting the Vote on Account which will indicate borrowing projections by the Centre. These projections would indicate liquidity in the system, accordingly RBI will decide on rates and ratios because RBI has to worry about financial stability also,” he said.
However, there is a divided opinion on whether the Government could in fact announce measures in the interim budget.
“Constitutionally, there is no bar,” Home Minister P Chidambaram had said earlier this week when asked whether the Government can announce measures to stimulate economy.
On the possibility of the government changing the tax structure in the interim budget, Planning Commission Deputy chairman Montek Ahluwalia said, “This is something for the Finance Ministry to say. Normally it (tax changes) does not happen.”
When asked whether the Government can announce measures to stimulate the economy in the interim Budget, JNU Professor Jayati Ghosh said,“Apparently not.”
Mukherjee had earlier said the Government would take more steps to boost the labour-intensive sectors.
“As next year’s outlook is more downbeat... the Government will take further steps to ensure that the labour- intensive sectors are less adversely affected,” he had said.
Ahluwalia, who returned recently from the World Economic Forum meeting in Davos, said the world economy is not in good shape and “fiscal stimulus that we have given during the year should continue for one more year.”
The Government has already come out with two stimulus packages and raised the public expenditure by 20% over and above the budget estimate to arrest the impact of global crisis, which manifested in September, on India.
The crisis has already impacted industrial production, which contracted in October after a gap of 15 years. Even the exports moved into the negative territory, declining for three consecutive months since October.
The economic growth, as per the RBI projections, is likely to slip to seven per cent in 2008-09 from 9% in the previous fiscal.
In view of these developments, it would be imperative on the Government to take some immediate steps as the final Budget for 2009-10 could only be presented in July after the formation of new government post-elections.