There Is No Sign Of Slowing Down Of Financial Crisis - Feb 25, 2009

There is no sign of slowing down of financial crisis in India''s economy, with government spending likely to continue. Finance Minister Pranab Mukherjee''s interim budget has confirmed the worst fears of economists that India''s fiscal deficit is expanding.

According to financial firm, Goldman Sachs, India''s combined fiscal deficit at around 11 per cent of GDP is now among the highest in the world. The deficit is unlikely to come down in the next few years. Also, global rating agencies like Moody''s, Fitch and S&P have warned that India''s rating may be downgraded.

In the meantime, policymakers insist the rising deficit is expected, given the government''s increased spending. Montek Singh Ahluwalia, Deputy Chairperson of Planning Commission, said, "I should say it''s a cause of congratulations. All of you who have been asking for a fiscal stimulus should congratulate the government that you have been given a fiscal stimulus. It''s impossible to have a fiscal stimulus and not increase in deficit."

Manufacturing Sector Output Dips - Feb 10, 2009

The growth of the manufacturing sector, which is hit hard by the global financial meltdown, will fell to seven year low of 4.1% during the current fiscal ending March. The official advance estimates of the national income, which was released yesterday reveals that the growth rate of manufacturing sector will be halved to 4.1 per cent as against 8.2 per cent reported in the last fiscal. This will be the lowest manufacturing sector growth since 2001-02. The manufacturing sector, since September, has been hit hard by the financial meltdown along with the domestic demand slowdown and declining exports, leading to job loss in various sectors, especially textiles and other labour-intensive industries.

The index of industrial production in October 2008 entered the negative territory for the first time in 15 years. Since then the exports have been declining and the growth rate has remained in the negative zone. To deal with this, the government as well as the RBI have together taken a slew of measures that include four per cent cut in excise duty followed by raising the public expenditure and releasing about Rs 3.8 lakh crore into the system.

Avoid Tax Cascades In The Financial Sector

NEW DELHI: Growth means change and pro-active change does involve taking calculated risks for the greater good. Consider, for instance, policy change and reform, which is key to India sustaining the economic growth momentum. The Budget needs to draw up a road map for tax reform and attendant operational changes in a vital sectors like banking and financial services.

As the recent high-powered committee on making Mumbai an international financial centre emphasised, we have indeed dismantled an “autarkic license-permit raj” in industry and trade; but we need to do it again in finance. It would step up efficiency and productivity across the board, and lead to better allocation of resources.

The way ahead is to have a tax regime in finance that does away with cascading rates, including stamp duty, registration duty and the securities transaction tax. Instead, what’s required is sound tax design for a goods and services tax (GST) in finance.