With the rounds of meetings, the Finance Minister has been having with the different sections of industry and trade in India, almost getting over, the speculation has started on what the government could come up with, to mitigate the current problems the economy is facing. According to a Mint report, the government is putting together a stimulus package that would have a set of measures, including tax cuts and targeted sops.
However, there are several concerns about the options the ministry has at this point. Mainly, there are two important constraints. The tax collections are not so buoyant, for obvious reasons that the government can consider a cut in taxes. Moreover, any tax cut decision can only be taken at the GST Council. The states, especially the large ones like Maharashtra, Kerala and Karnataka are already going through crises brought on by the floods and they have started working up their calculators to seek financial assistance from the Centre. At this time to ask them to sacrifice their revenue may not be the best option.
The other concern is any stimulus package that the government announces, will directly impact the fiscal deficit and the commitment to stick by the Fiscal Responsibility and Budget Management (FRBM) principles.
However, the government may actually be left with very little option beyond these, some tax concessions here and there and a stimulus package that may put some money directly in the hands of the consumer to rekindle the fires in the economy.
Though there were some reports during the past few days that the government many not consider any tax rebates for the automobile industry, a latest report says such a move may be on the cards. The reason cited earlier for not agreeing to demand from the sector was that the government feels the auto makers had delayed the process of adopting BS VI due to which the buyers of automobiles were hesitant to invest in vehicles which could be made redundant faster. The other general sense was that the moment the government chooses one sector for concessions, the floodgates will open and every other sector will come up with their own demands one by one and the government possibly will not be able to handle that.
There is another view that says the Fiscal Responsibility and Budget Management (FRBM) issue can still be tackled by a 50 basis points relaxation in the fiscal deficit citing the extraordinary situation and the global economic downturn being witnessed currently. This escape clause, it seems, has been suggested by the N.K. Singh panel that carried out a review of the FRBM Act.
The government can use this option that can release around Rs 1.17 trillion which may be deployed for this stimulus packages, in whatever form the government wants to go about them.
As already reported the key challenge before the Finance Minister is how to recreate the demand for goods in the market.
Meanwhile, the meetings the FM has been holding with various segments of the industry continued on Sunday when she met with the stakeholders in the real estate sector, which included home buyers and a couple of industry bodies like the CREDAI. Those at the helm of affairs in the banking and automobile sectors, foreign portfolio investors, micro, small and medium enterprises, industry associations have all met her already through the week.
It is now left to the FM to work on the solutions, obtain the approvals from the PM and the Cabinet and make public the plan of action.