Reeling under the impact of rising interest and input costs, India Inc is likely to ask Finance Minister Pranab Mukherjee not to further withdraw the stimulus in his forthcoming Budget.
Issues concerning rising borrowing costs, infrastructure bottlenecks and the urgency of achieving double-digit growth are likely to figure in the customary pre-Budget consultation meeting of the minister with captains of Indian industry in New Delhi today. Apex chamber Ficci has already cautioned the government against a further roll-back of the stimulus provided to industry to combat the impact of the global financial meltdown.
Ficci president Rajan Bharti Mittal had said that in view of the threat of double-dip recession in advanced countries, the government should refrain from rolling back the stimulus in the Budget to be unveiled on February 28.
According to the chamber, the rates of excise, customs and service tax should be retained at the existing level.
Another chamber, Assocham, wants the government to encourage private sector participation and step up investment in the infrastructure sector, especially in power, road, telecom, ports and airports projects, to achieve a 9-10 per cent growth rate.
In order to help the industry in the aftermath of the crisis, the government and the RBI provided a stimulus to the economy to tide over the turbulence. The government reduced tax rates and raised public expenditure, while the RBI released more funds into the system.
In view of the economic recovery, Mukherjee had started the process of withdrawal of stimulus by raising tax rates in the 2010-11 Budget.
With the economy recording a growth rate of 8.9 per cent in the first half of the current fiscal, Mukherjee is expected to further withdraw the stimulus with a view to reduce the fiscal deficit, which is expected to be about 5.5 per cent of the GDP in 2010-11.
The economy was expanding by over 9 per cent per annum before the global crisis pulled down the growth rate to 6.7 per cent in 2008-09. On the back of the stimulus measures announced by the government, the growth rate picked up to 7.4 per cent in 2009-10 and the economy is projected to chart 9 per cent expansion this fiscal.
Although the growth momentum picked up in the first half of the current fiscal, rising borrowing costs are becoming a major issue. Interest rates have been moving northward following the decision of the RBI to tighten the monetary policy to check rising inflation. During 2010, the RBI raised key short-term rates six times.
With food inflation rising to 18.32 per cent in the week ended December 25, the RBI is likely to raise interest rates further at its policy review on January 25.