Finance minister P Chidambaram has warned he plans to administer a “bitter medicine” to bring the economy back on growth trajectory. While the minister did not make explicit, the chief economic advisor in the finance ministry Raghuram Rajan indicated the government could withdraw some tax sops for industry.
“We are reaching the limit of (fiscal) stimulus and we must contemplate ways of generating sustainable growth again”, he said at the Delhi Economics Conclave on Friday.
Chidambaram made the comments in his reply to the debate on supplementary demand for grants in the Lok Sabha. The minister also said some of these measures will be taken in the next few weeks.
In the wake of the global meltdown in 2008-09 the government had reduced excise duties and service tax as well as given some relief for specific sectors like exporters and commercial vehicle manufacturers. Some of these had been rolled back, but the government had been unable to bring all of them back to the pre-crisis levels.
The finance minister’s comments were made a day after the Cabinet cleared a clutch of reform measures including setting up of a Cabinet Committee on Investment (CCI). Earlier the proposal to bring in FDI in multi-brand retail has also got through Parliament despite stiff resistance from the Opposition.
Chidambaram said, “We have to take some bitter medicine. There is no other way ... this bitter medicine is good medicine. It will restore the health of the economy and next year we can look forward to much higher growth”. The additional cash expenditure for the government in the supplementary demand for grants is Rs 30,804 crore. In an address to the economists at the conclave, Chidambaram expressed confidence that the steps taken by the government will soon start yielding results. “This is unlike the situation during the 2008-09 global crisis...In my view, the present challenge is therefore different and calls for bold and innovative measures,” he added.
The CCI is to be headed by the Prime Minister to fast-track mega project with investment of over Rs 1,000 crore. Recently, the government moved ahead with a slew of reforms including hike in diesel prices, capped subsidised LPG cylinders, allowed FDI in aviation and broadcasting sectors and plans to roll out direct cash transfer scheme for providing subsidies. However, the measures are yet to reflect the upswing in investment sentiments. “It is too early to say whether