To instill confidence among investors feeling jittery about the impact of the euro zone crisis on Indian stock markets and the rupee, the government on Wednesday said it would announce “unpopular” austerity measures. Informing the Parliament about this, Finance Minister Pranab Mukherjee, however, said the panic button should not be pressed.
These would be the second such measures in the recent past, after the government announced similar steps in September 2009. However, this time the push is coming from non-agricultural factors. Widening fiscal and current account deficits and overall economic sentiments are pushing the rupee to new lows and resulting in selling pressure in the stock markets. In 2009, it was primarily a drought that had necessitated some belt-tightening, analysts said.
Replying to a debate on the Finance Bill, Mukherjee said, “I’m going to take a little bit of unpopular steps. I am going to issue some austerity measures.” He added, “We are not pressing the panic button.” Later, the Rajya Sabha returned the Finance Bill and Appropriation Bill to the Lok Sabha.
| PRANAB READY TO BE UNPOPULAR |
| ON AUSTERITY: “I am going to take a little bit of unpopular steps. I am going to issue some austerity measures” |
| ON STOCK MARKETS: “Uncertainty is not just confined to Greece, not confined to four countries in Europe, but the entire Asian market today is taken by it” |
| ON OIL PRICES: “Petroleum prices are increasing by leaps and bounds. If we do not take corrective measures, we'll have to face disastrous consequences” |
| ON SUBSIDY CUTS: “I am not hesitating to bite the bullet if it achieves the goal, but not if it ends in a fiasco” |
| ON RETROSPECTIVE AMENDMENTS: “The Supreme Court's interpretation, unless changed by the subsequent amendment of the (Income Tax) Act, stands as the law. I would have had to pay Rs 40,000-50,000 crore (to companies that paid taxes on deals similar to Vodafone-Hutchison)” |
Though Mukherjee did not mention the rupee, he said the Sensex was down by almost 300 points by 1.45 pm, but stocks markets were down all over Asia. "For instance, Taiwan is down by 2.18 per cent, Indonesia 2.70 per cent, Korea 3.08 per cent and Hong Kong, 3.37 per cent. These are all minus figures, which show the downward trend. It is because what was decided by the electors of Greece, in defeating a particular political party, raised questions on the uncertainty of resolving the euro zone crisis and the package which was worked out by the leaders of Europe," he added.
In September 2009, the government had announced austerity measures, including travelling economy class on domestic flights by ministers and government officers. Mukherjee recalled some of his ministerial colleagues, particularly those who were tall, were angry with the travel proposal. "They said there is no adequate leg space, what should they do?" he said.
Besides, the finance ministry that year had asked various ministries and departments to cut non-plan expenditure by 10 per cent. The mandatory cut included spending on publications, professional services, advertising and publicity, office expenses, petrol, oil, lubricants, etc, except for security-related requirements. The remaining non-plan expenditure was subjected to a five per cent cut.
Besides, ministers and officials were asked not to hold conferences in five-star hotels.
However, Mukherjee did not specify what kind of austerity measures would come this time. “We are going to take some sort of austerity measures to convey the signal that we are responding to the situation as needed,” he said.
Later, he told reporters he had directed his ministry to look at what could be done. However, India's austerity measures would not be like those in other countries and may simply target non-plan expenditure and not the plan outlay in order to keep the growth momentum going, officials said.
In Parliament, Mukherjee also said the government would have had to refund Rs 40,000-50,000 crore to companies that had paid tax on overseas deals had he not resorted to retrospective amendments to the Income Tax Act.
Mukherjee denied Vodafone was not told before its deal with Hutchison that it had to deduct tax. He said Vodafone representatives were told by him that their company was informed twice prior to the deal that it had to deduct capital gains tax. He also disclosed he had categorically told his UK counterpart George Osborne that London had also resorted to retrospective amendments in tax laws.
He refused to buy the opposition argument that CEOs of companies were expressing keenness to not invest in India, saying there were many companies willing to invest. Saying India had been taking steps to attract foreign direct investment, Mukherjee said sometimes decisions were time-consuming because of coalition compulsions.
He said subsidies would be kept at the pegged level of 1.9 per cent of GDP this fiscal.
