19 Feb : Projecting over 8 pc economic growth next fiscal, the Prime Minister’s economic panel has pitched for raising duties in the Union Budget 2010-11 as part of the roll back of stimulus measures.
“Partially, we need to roll back (stimulus) and if you partially roll back…. there is one possibility that you unify both the rates (excise and service tax) at 10 per cent (and also raise both rates) to 12 per cent,” Prime Minister’s Economic Advisory Council member Govinda Rao said in New Delhi on Friday but clarified it was not a suggestion to the Finance Minister.
He was speaking after release of the Economic Review by PMEAC Chairman C Rangarajan.
Expressing concern over rising fiscal deficit, which is estimated at 6.8 percent this fiscal, the panel said it was crucial to cut down on spending to bring in fiscal discipline.
“There is a case for adjustment of duties…adjustments are possible both on the revenue and expenditure side in order to bring down fiscal deficit,” Rangarajan told reporters.
As part of the stimulus given to the industry to combat the global financial crisis in late 2008, the government had reduced the excise duty from 14 percent to 8 percent and service tax from 12 percent to 10 percent.
This pushed fiscal deficit up to 6.2 percent in FY’09 and it is expected to touch 6.8 percent of GDP in FY’10.
The PMEAC said growth in FY’10 would beat 7.2 percent and exceed 8 percent next fiscal, and 9 percent in the year after that.
On inflation, the PMEAC suggested import of 3-4 million tonnes of sugar to meet domestic shortfall next fiscal.
Expressing optimism that inflation will cool down a tad in February and March, the PMEAC said the rate of price rise would be more or less in line with RBI estimate of 8.5 percent by end of this fiscal.
The council suggested timely release of foodgrain in sufficient quantity below prevailing market prices, advance planning for imports at early signs of production shortfall and developing better distribution channel of food stocks to tame inflation and provide relief to the vulnerable section.
With food inflation at around 18 percent for the first week of February, the Prime Minister’s advisory panel sees the possibility of spreading food price inflation to general price level next fiscal.
PMEAC also pointed towards the danger of rise in commodity prices.
“India and China, as well as several other developing countries are showing strong signs of growth and their elevated domestic demand in combination with unsettled financial conditions has the potential of causing commodity prices to rise,” the panel said.
It said agriculture and power generation are major constraints of economic growth in medium and long run.
The council called for scaling up of nuclear power generation following Indo-US nuclear accord for civil supplies.
Going ahead, the council expects more neutral policy from RBI as economy improves, but said the central bank’s action will depend on many factors like inflation.
It expects foreign investment in securities market to halve to over USD 9 billion from USD 18 billion in the first half of this fiscal.