Third stimulus package - final giveaways before the polls

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Bikky Khosla | 25 Feb, 2009
This last week of February comes as the best week in the recent past. On Monday, the week started on a high note with the film Slumdog Millionaire bagging 8 Ocsars, of which music composer A R Rahman bagged two.

Then on the next day there was more to come - Finance Minister Pranab Mukherjee gave out Rs 30,000 crore of revenue on an annual basis in the form of a third fiscal stimulus package.

The third stimulus package announced on Tuesday before the poll of conduct sets in with general elections just weeks away, the government has undoubtedly injected the final dose for the economy. The slew of indirect tax concessions announced by the government to bolster the sagging demand for industrial goods and services will now provide the much needed fiscal measures for slowing industry and economy.

The reduction in service tax from 12% to 10%, continuance of 4% reduction in central excise duty beyond March 31 and cut in central excise duty on cement from 10% to 8% will now generate greater demand and help the industry and would provide the much needed relief to the Indian industry facing the demand constraint on account of loss of confidence due to economic slowdown.

Without doubt, these measures would help the domestic economy and keep it moving forward at a time when the external markets are in a shambles.

Meanwhile the ailing SME sector too will find some respite from the announcements. The chemicals, gems and jewellery, steel and textile sectors stand to benefit the most. With duty cuts, big companies are likely to buy more raw material from SMEs, which in turn will see a rise in demand of goods from SMEs.

I agree with industry stalwarts who say that these measures will help boost domestic economy only on a limited basis with the export sector's competitiveness likely to rise by about 0.25 percent.

Nevertheless, the fiscal giveaways announced by the government cannot be written off completely. What needs to be seen now is whether the stimulus package is followed up with interest rate cuts by the Reserve Bank of India (RBI).