Ahead of the Budget 2009-10, the economic survey on Thursday suggested tax cuts and increase in government expenditure as part of another stimulus package to help the economy overcome the global shock.

"The uncertainty surrounding the macroeconomic developments worldover in 2009-10 and the need for minimizing the second round impact of the global shock calls for a continued fiscal policy stimuli," said the Economic Survey for 2008-09 tabled in Parliament.

The survey said the next round of stimulus could include both tax cuts and increase in government expenditure. "Within the proposed fiscal expansion, the mix of expenditure and tax cuts would be critical in the context of its impact on overall macroeconomic fundamentals like growth, interest rates and exchange rate," the survey said.

The survey said stimulus packages given so far were selective to address the affected sectors and promote investments that would not only boost demand in the short run but yield long-run growth dividends.

The three stimulus packages provided by the government have cut excise duty by 6 per cent, service tax by 2 per cent and raised planned expenditure, resulting in widening of fiscal deficit to over 6 per cent in 2008-09.

The report said the Five-Year Plan seeks to reduce underemployment and moving surplus labour in the agriculture sector to more gainful employment in the non-agricultural sector with higher wages.

According to the Survey, the Plan has identified the labour-intensive manufacturing and services sectors with good employment potential.

Such sectors include food processing, leather products, footwear, textiles, wood and bamboo products, gems and jewellery, handicrafts, handlooms, tourism and construction. Meanwhile, employment growth in the organised sector – both public and private – has dropped during the 1994-2006 period to 0.12 per cent. This was mainly due to a negative employment growth rate in the public sector at 0.54 per cent.

Growth in jobs in the organised sector stood at 1.20 per cent in the 1983-94 period, with the public sector accounting for 1.53 per cent of the total.