Finance ministry officials said on Friday they needed to hold more meetings before finalising the sector-specific steps to revitalise the economy as the proposed measures should be in conformity with the fiscal deficit target for the fiscal.
The officials said the stimulus would be more procedural in nature — in the form of rule changes and easing of norms — with limited scope for tax relief.
Finance minister Nirmala Sitharaman said in Ahmedabad that the ministry officials were in discussions with their counterparts at the PMO and once the talks were over, the government would finalise the remedial steps.
While the foreign portfolio investors, who have been inadvertently included in the surcharge on taxable income, can expect to get relief from the government, the auto sector is unlike to get any significant sops.
The auto sector has been demanding a reduction in the GST rate to 18 per cent from 28 per cent. Officials said the issue would have to be discussed by the GST Council and could be taken up at its next meeting on September 20.
Officials said a 10 basis-point reduction in the GST would cost the Centre and the states Rs 50,000 crore annually in lost revenues.
North Block officials said the government was considering fiscal relief measures for different sectors, but the constraint was that the Centre is working within “limited resources”.
Fiscal deficit for the first three months of the current financial year has reached more than 61 per cent of the budget estimate, according to government data.
Fiscal deficit is the difference between government’s earnings and expenditure. At 3.3 per cent of GDP, the government has budgeted over Rs 7-lakh crore as fiscal deficit for the current fiscal.
Devendra Kumar Pant, chief economist and senior director (public finance) at India Ratings and Research, said: “Unless the consumption slowdown is reversed quickly, it will be a tough task for the government to achieve the fiscal deficit target for this fiscal.”
Prime Minister Narendra Modi had reviewed the state of the economy with Sitharaman and other officials on Thursday.
Officials said the “PM was worried about job cuts and the issue of credit availability for the micro small and medium enterprises (MSME). The PM has asked the finance minister to streamline ideas to spur jobs and business sentiment”.
The ministry has been meeting different industry and sectoral representatives in the past week to understand the issues and offer solutions.
The review meeting, the officials said, was to assess the nature of the slowdown and its long-term impact.
Slow growth
India’s economic growth rate has slowed to 6.8 per cent in 2018-19 — the slowest pace since 2014-15.
While the finance ministry has remained tightlipped on the stimulus measures, Reserve Bank of India governor Shaktikanta Das had earlier this month said the slowdown in the economy was more cyclical than structural, and a turnaround was likely in the fourth quarter.
The auto sector is facing its worst crisis in two decades and reports suggest thousands of job losses in the automobile and ancillary industry. In the real estate sector, the number of unsold homes has increased while fast-moving consumer goods (FMCG) companies have reported a decline in volume growth in the first quarter.
The unsold inventory pile in the housing sector is getting bigger with time and total unsold inventory for tier 1 cities stands at 6.65 lakh which is worth over Rs 5.53 lakh crore, according to some estimates.
Though lending by banks to industries has shown a significant jump from 0.9 per cent in April-June quarter in 2018 to 6.6 per cent for the same period this year, the same to job-creating MSME sector has slipped from 0.7 per cent in 2018 to 0.6 per cent in June quarter.
Also, direct tax collections have grown by just 1.4 per cent. The growth in GST collection till July this fiscal too has been only 9 per cent as against 18 per cent estimated in the Union Budget.
