Stand-in finance minister Pranab Mukherjee need not have quibbled over Constitutional propriety and could have announced the stimulus package of about Rs29,000 crore a week ago when he presented the interim budget. But he did not and the reason put out was that the vote on account ought not to be used to push through commitments which the next government would have to meet. The markets were disappointed but constitutional correctness was maintained.
Barely had the ink dried that the government has come out with specific proposals — excise and duty cuts — that are sweeping in their scope and will cost around Rs30,000 crore. Except that this is now being called a quasi-third stimulus package. A clever sleight of hand, given that elections are round the corner. Once the dates are announced, the government cannot throw sops around any more. Which also explains the rush to clear proposals through Cabinet.
Politics has certainly played a role in this decision. It is clear that the economic situation is not rosy, or at least the market sentiment, which drives the economy, is not. Jobs are being lost, production and sales figures have moved south, and there is uncertainty all around. There was need for a governmental push. Rural demand is picking up but it is the cities that needed a pep pill; the concessions are aimed at just that target group, which buys LCD televisions and goes to parlours and gyms.
The first stimulus package which was announced in December amounted to around Rs40,000 crore and was meant to trigger infrastructure activity. The second came in January, which involved tweaking of bank rates in order to ease credit flow. The packages were indirect and there was demand for something more because they did not seem to have an immediate impact. The latest one is tangible because the concessions come in the form of tax sops. Will it lead to more spending activity across sectors? The UPA's bosses will certainly hope so.
The government and more importantly, the next government will have to worry about the rising fiscal deficit which is tilting over into double digits. Credit rating agency, Standard & Poor's has sounded the alarm by moving India's sovereign rating from 'stable' to 'negative' mainly due to the looming deficit. Stimulus or not, India's economic problems are not going to go away soon.
DNA-Daily News & Analysis Source: 3D Syndication