‘Chances of fresh fiscal incentives to catalyse economic growth are remote'
With no headroom left for yet another fiscal stimulus package to spur economic growth, which tapered down to 6.5 per cent in 2011-12, Finance Minister Pranab Mukherjee, on Monday, sought to pin hopes on declining global crude oil prices and a normal monsoon for a turnaround during the current fiscal.
Addressing top officials at an annual conference of the Income Tax Department here, Mr. Mukherjee said: “We are taking all necessary steps to ensure that we come back to the path of the targeted GDP [gross domestic product] growth. Of course, it will take some time ... but from this year we expect to make a turnaround.''
Even as a GDP growth at 6.5 per cent during 2011-12 is one of the highest globally in the current uncertain economic environment, it marks a slump to a nine-year low from a robust 8.4 per cent expansion posted for the two previous fiscal years. Alongside, in the absence of any fresh reforms and headroom for fiscal manoeuvring in the wake of high inflation and widening fiscal and current account deficit, global financial services firms have also been lowering the country's growth forecast for 2012-13 further to sub-six per cent.
The Finance Minister conceded that chances of offering fresh fiscal incentives to catalyse economic growth were remote. “The second round of global uncertainty and the slowdown has come rather quickly on the heels of the previous one, with practically no headroom for running a pro-active fiscal policy,” he said.
It may be recalled that while the impact of the global meltdown of 2008 on industry was largely softened by extending stimulus packages worth Rs.1.86 lakh crore in phases, such a cushion is not available to the government this time round as the fiscal deficit is already at a high and adhering to the target of 5.1 per cent of the GDP during the current fiscal may turn out to be difficult. Besides, with the launch of second generation reforms — barring the Direct Taxes Code (DTC) proposed to be rolled out from April 1, 2013 — facing a number of hurdles, the options before the government are limited.
Not surprising, therefore, that the Finance Minister sought to highlight some of the positives in the current gloomy scenario. Mr. Mukerjee pointed out that apart from the fall in crude prices, the interest rate cycle had been reversed, there was growth in the mining sector, turnaround in investment growth rate and there were predictions of a normal monsoon. “All these factors should help in recovery of domestic growth momentum,” he said.
Fall in tax-GDP ratio
Expressing concern over the fall in tax-GDP ratio, Mr. Mukherjee asked the taxmen to work ‘relentlessly' and take up the challenge in their stride and pointing to the direct tax collection target of Rs.5.70 lakh crore for 2012-13 — even as the total collection during 2011-2 at Rs.4.95 lakh crore was a tad lower than the revised target of Rs.5.05 lakh crore. “I do feel this target is moderate and can be achieved … At a general level, there is an urgent need to reverse declining trend in tax-GDP ratio by augmenting collections,” he said, while noting that the ratio which was near 12 per cent in 2007-08, dropped to around 10.5 per cent in 2011-12.
As for roll-out of the DTC, the Finance Minister asked the I-T Department to prepare itself for the switch from the Income Tax Act, 1961, to the new direct tax regime. “I have indicated that the amended Bill will be introduced in Parliament in the monsoon session. I am hoping that the DTC will be effective from April 1, 2013 … All this [the transition] has to be completed in a manner so as to avoid inconvenience to tax payers and also to sustain the revenue buoyancy,” he said.
Black money menace
On the steps taken to curb the black money menace and deal with the unaccounted money stashed abroad by Indians, Mr. Mukherjee said the government was in the process of expanding the network of Income Tax Overseas Units (ITOUs) to collect information on such illicit funds on real time basis.
While the government had commissioned a study on unaccounted income and wealth within and outside the country which is expected to be completed in September, Mr. Mukherjee said it was also examining the report of a committee on ways to strengthen the existing laws against black money. “I hope that these two studies will help in identifying the gaps in the present legislative and administrative framework and shall help us in checking the menace of black money through an effective policy response,” he said.
To review PSBs' performance
Against the backdrop of tough economic conditions, Mr. Mukherjee will review the annual performance of government-run banks and financial institutions on Tuesday.
Mr. Mukherjee will meet chiefs of public sector banks and financial institutions to review their performances.
The review will focus on credit to agriculture, housing and education loans, gross and net non-performing assets (NPAs), according to an official release.