In what may be its last move before the election code of conduct sets in, the government on Tuesday cut excise duty and service tax rates by 2% each. Given the slowdown, lower tax collections — both direct and indirect — have already hit government revenues. The tax incentives mean the fiscal deficit would widen further.
A host of other measures being implemented by the government, such as debt relief for farmers and pay hike for government employees, have already put the fiscal position under stress. Experts say revenues would be hit to the extent of Rs 30,000 crore, pushing up the fiscal deficit to 6.5% of the gross domestic product from current 6% now.