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The government on Tuesday assured industry that it will not roll back the tax cuts announced in the stimulus packages and its high market borrowings of about Rs 4 lakh crore (Rs 4 trillion) will not dry up resources for the private sector.
"I have no intention of rolling back (tax cuts given in stimulus packages)... No doubt I have taken a risk. A risk of leaving fiscal deficit of 6.8 per cent, which is perhaps the highest ," finance minister Pranab Mukherjee said in his interaction with industry chambers, the Confederation of Indian Industry, Federation of Indian Chambers of Commerce and Industry and the Associated Chambers of Commerce and Industry of India.
The finance minister also said he would strive to bring down high fiscal deficit of 6.8 per cent of the GDP projected for the current fiscal to 5.5 per cent in the next fiscal and four per cent in 2011-12.
"Therefore, I myself and my colleagues in the finance ministry have undertaken a strenuous job that in the next 7-8 months, we shall have to do a lot of work so that we can reach this target in 2010-11 and 2011-12," Mukherjee said.
High fiscal deficit will force the government to borrow around Rs 4 lakh crore from the markets this fiscal, which many fear would crowd out private sector investment, an apprehension that led to a crash in stock markets on Monday.
It is this fear that Mukherjee allayed today. "I do agree that (there is apprehension that) whether the private sector will be elbowed out by the substantial borrowings by the government. Surely we will have to make our planning in such a way that this aspect is taken note of. I can assure you, the intetion is not to crowd out the private sector from the market," Mukherjee said.
He said genuine requirement of the private sector has to be taken note of and that is one of the important challenges that the government has to face.
The government has cut excise duty by six per cent and service tax by two per cent in three stimulus packages, which together with increased public expenditure has widened the fiscal deficit.
Besides, it also abolished fringe benefit tax, an irritant for corporates, and withdrawn the proposed Commodity Transaction Tax in the Budget on Monday.
Fiscal deficit touched 6.2 per cent last fiscal and is projected to widen further to 6.8 per cent in the current fiscal as tax receipts are estimated to decline and public expenditure projected to rise above Rs 10 lakh crore (Rs 10 trillion) for the first time in the history of independent India.
"No doubt, I have taken a risk, and there is a fiscal deficit of 6.8 per cent, which is perhaps the highest...While tax receipts were on downward curve, public expenditure have to be boosted to create demand and fund infrastructure, especially in the rural areas," he said.
The finance minister said the Government did not have any other option but to depend heavily on the borrowed resources.
He said the budget was prepared amid indications that the global meltdown would continue in the current fiscal.
Even though inflation has come down swiftly, rains have started in many parts of the country and many segments in manufacturing are showing improved results, Mukherjee said,"I cannot say we are out of the economic slowdown."
However, he asserted that the country must come back to the growth path as fast as possible.
On complaints by some that the Budget has not laid the roadmap for disinvestment, Mukherjee said the budget is not a document which can set forth micro details and minute aspects in this regard.
"I have very clearly made our intentions clear, which is to encourage people's participation in our disinvestment programmes while retaining at least 51 per cent equity in our enterprises," he said.
The finance minister also hoped that the proposed goods and service tax would be introduced as scheduled, though he did not rule out some states deciding to stay out from the new indirect tax regime in the beginning.