The Hindu Business Line : Focus on adjusting indirect taxes to spur consumer durables growth

Target consumer goods: The Union Finance Minister, Mr P. Chidambaram, and the Chairman, Prime Minister’s Economic Advisory Council, Dr C. Rangarajan, at a pre-Budget meeting at North Block in the Capital on Wednesday. The two discussed the issue of making some adjustment in indirect taxes in order to stimulate the consumer durable goods sector.

Our Bureau

New Delhi, Jan. 16 Faced with slowdown in industrial production and a sluggish offtake of consumer durables, the Budget 2008-09 might well bring about adjustments in indirect taxes, particularly a cut in excise duty, on consumer durable goods to spur growth in this sector.

The Chairman of the Prime Minister’s Economic Advisory Council, Dr C. Rangarajan, on Wednesday discussed with the Finance Minister, Mr P. Chidambaram, the issue of making some adjustment in indirect taxes in order to stimulate the consumer durable goods sector.

“We discussed what can be done to stimulate growth in the economy … the possibility of increase in public investment and also some adjustment in indirect taxes could be done in order to stimulate the durable consumption goods sector,” Dr C. Rangarajan told reporters after his pre-Budget meeting with the Finance Minister here on Wednesday.

Demand slide

Industry observers and some economists had recently taken a view that the drop in demand for consumer durables could have been an important trigger for the sharp decline in overall growth in industrial output in November this year. In November 2007, consumer durable sector saw a negative growth of 4.1 per cent.

To tackle the sluggish growth in consumer durable and non-durable sectors, the Finance Minister had recently advised public sector banks to ensure that adequate credit is made available to consumers.

Meanwhile, Dr Rangarajan said that the Prime Minister’s Economic Advisory Council estimates GDP growth of 8.5 per cent in fiscal 2008-09. This is lower than the 9 per cent growth estimated for 2007-08 by the Council. “Our own view is that the economy will grow at about 8.5 per cent next year. There are some areas where there are weaknesses which are well known, like manufacturing,” Dr Rangarajan said.

On direct taxes, Dr Rangarajan said that he felt that direct tax rates should be maintained at the current level. “In general, we should keep tax rates as they are. Some adjustments in slabs could be possible. I think tax rates will remain stable,” he said.

Rupee rise

Dr Rangarajan also said that the issue of rupee appreciation against the dollar was discussed at the meeting with the Finance Minister. “We had already given three choices — let rupee appreciate little, do some sterilisation, and do something about capital inflows. It is a combination of these measures that we have to take,” he said.

On whether interest rate issue was discussed at the pre-Budget meeting, Dr Rangarajan replied in the negative.