How much of the fiscal stimulus did the Union Budget roll back? The government has indicated that the rollback will be in stages as the economy returns to a more sustained improvement in growth rates. So, if the economy does return quickly to its full throttle, what should we expect the government to roll back?

To answer this, we need to know what the fiscal stimulus consisted of in the first place. Officially, there were two fiscal packages announced by the government to stimulate the economy. The first one was announced on December 7, 2008. It sought to increase the plan expenditure by Rs 20,000 crore in 2008-09. It also sought to ensure full utilisation of funds already provided. As a result, Plan and non-Plan expenditure in the last four months of 2008-09 were expected to be of the order of Rs 3,00,000 crore.

Thus, in the last four months of the year, the government planned to spend about 40% of the monies that it had originally budgeted to spend in the entire year. This was indeed a massive government spending plan.

The Rs 60,000-crore farm loan waiver announced on February 28, 2008 was never officially clubbed with the fiscal stimulus packages. Nevertheless, it was an important component of the effective fiscal stimulus. The same can be said of the Sixth Pay Commission awards. Although the farm loan waiver was announced in the earlier Budget speech before the crisis, the amount of the waiver was not allocated in the Budget. This came closer to the fiscal stimulus package.

The farm loan waiver, the Pay Commission awards and the increase in the Plan expenditure are the biggest components of the effective fiscal stimulus package. None of these can ever be rolled back.

Some of the announcements made as part of the fiscal stimulus were time-bound anyway. So, the rollback was automatic. In January 2009, the government announced that states would be allowed to raise additional market borrowings of up to 0.5% of their gross state domestic product. This amounted to a significant Rs 30,000 crore of additional resources in the hands of the states to spend. This fiscal measure, which was designed to help state governments also and step up the momentum of government spending, effectively lapsed with the end of the year. Thus, the rollback was automatic.

Similarly, states were provided a one-time assistance to purchase buses for their urban transport systems under the JNNURM up to June 2009.

Commercial vehicles purchased between January and March 2009 were allowed accelerated depreciation at the rate of 50%. These were time-bound programmes that had an in-built rollback mechanism.

So, effectively, we are left with very little to roll back. Of what is left, one?the Cenvat?has been partially rolled back from 8% to 10%. Domestic demand is so buoyant that most manufacturers are expected to pass on this additional duty to the consumer. The effective price hike is not expected to hurt growth in demand. Thus, manufacturers are not likely to be impacted by this increase at all. Gross sales will be a little more, but net sales and profits will remain largely unaffected.

There is a significant political difference between the fiscal stimulus provided in the West and the one provided in India. In the West, government bailout packages were handed out to large distressed financial institutions. Many of these used taxpayers? money to pay their top executives handsome bonus packages. Effectively, the political system in the West ended up using taxpayer monies to line the pockets of those who were responsible for causing the crisis. Politically, that was hugely embarrassing to the establishment.

In the US, the Republicans were not only embarrassed for having to bail out capitalism; they even lost the elections after having compromised their religion of the superiority of the market.

In India the fiscal stimulus did not require any bailing out. The banks and the corporates were robust enough to weather the storm. All they needed was the infusion of a little more liquidity, which RBI deftly provided. Nevertheless, we had an extraordinary situation. Experts were furiously painting a depressingly gloomy picture of the future. This was globalisation of fear. Industry leaders joined in and soon we had a consensus that something should be done.

The political system swung into action. There were no entities to save from the crisis, so they helped themselves. The political system suspended the FRBM target and awarded itself generous doses of monies to spend on populist schemes such as loan waivers, NREGA, etc.

They yielded a rich harvest for themselves. They won elections handsomely and took credit for having saved the country from a disaster that others had imagined was impending. Now, they are back to reining in the fiscal deficit in earnest, spending on infrastructure and spurring demand by cutting personal tax rates. In short, they are back at doing all the sensible things.

They are left with only one small ticklish problem?what should they roll back?

The author heads Centre for Monitoring Indian Economy