Fiscal Package Grossly Inadequate

The Polit Bureau of the Communist Party of India (Marxist) issued the following statement on December 9, 2008

THE fiscal package announced by the Manmohan Singh government to address the economic slowdown in the backdrop of the global economic crisis, while being late in coming is also grossly inadequate. The increase in Plan expenditure is only of Rs 20,000 crore, which is less than 0.5 per cent of India�s GDP. Such a weak fiscal stimulus would not succeed in reversing the slowdown and arresting the consequent job losses and growing unemployment in the economy. What was required was a much higher public expenditure programme aimed at generating employment and enhancing incomes of the working people through increased public investment in agriculture, expansion of the NREGA, higher allocations for health and education, infrastructure like rural roads, housing for the middle and lower income groups and universalisation of the PDS. Most of these have been ignored by the government.

The government has primarily relied on tax cuts, like the 4 per cent cut in the CENVAT rate, to stimulate the economy. The earlier tax sops for the civil aviation sector has shown that the private corporate sector is not keen on reducing retail prices following such indirect tax concessions. In the absence of price cuts by industry, tax concessions would only bolster corporate profits and utterly fail to stimulate demand in the real economy. The meagre interest rate subsidy and tax concessions to the export oriented sectors would also fail to address the enormous job losses being experienced there. The government has failed to link the concessions to industry to conditionalities preventing layoffs and retrenchment. Moreover, the elimination of export duty on iron ore is a totally retrograde step, which is not in the country�s interest.

The state governments have been totally neglected in the fiscal package. With tax revenues falling due to the economic slowdown, the state governments are experiencing great difficulties in maintaining the desired level of Plan expenditure. A debt relief package for the states alongwith interest rate subsidy on their borrowings and relaxation of fiscal responsibility norms is a must, in order to enable the state governments to step up expenditure to create jobs and expand welfare measures.

The Polit Bureau wants the Manmohan Singh government to respond effectively to meet the concerns and needs of the working people by taking more appropriate measures.