Tuesday, February 24, 2009

The Third Stimulus Package

The Indian Govt has announced a slew of indirect tax concessions to bolster sagging demand for industrial goods and services. The stimulus includes the reduction of the excise duty rate to 8 per cent from the existing 10 per cent for sectors such as auto, steel, consumer durables, FMCG, and IT hardware & peripherals; (about 96 per cent of the country’s excise revenues hitherto came under the 14 per cent rate, which was recently lowered to 10 per cent and now to 8 per cent.) Also, excise duty on bulk cement has been reduced; bulk cement prices may be reduced by Rs.4 per 50-kgs. Service tax rate on taxable services have been brought down from 12 per cent to 10 per cent, so utility services may cost less, telecom, hospitality, tourism and aviation sectors should lower charges. The tax concessions would entail revenue sacrifice to the tune of Rs.30,000 crore (in a financial year) and has not been factored in the Budget estimates for 2009-10.
Standard & Poor’s (S&P) changed its outlook on India’s long-term sovereign credit rating from stable to negative. This outcome is expected given the slowdown in growth and rising fiscal deficit. In fact, the global credit rating agency reasoned that the revision in outlook reflects its view that India’s fiscal position has deteriorated to a level that is unsustainable in the medium term. S&P, however, affirmed its ‘BBB-’ long-term and ‘A-3’ short-term sovereign credit ratings on India.


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