Ahead of the Budget, Prime Minister's Economic Advisory Council on Friday made a case for a partial roll back of stimulus by way of raising excise duties and reducing expenditure -- which would automatically help reduce the fiscal deficit.
"There is a case for adjustment of duties...adjustments are possible both on the revenue side and the expenditure side in order to bring down fiscal deficit," PMEAC chairman C Rangarajan told reporters after releasing the Review of the Economy 2009-10.
The Review said the economy would grow by over 7.2 per cent during the current fiscal and exceed 8 per cent in the next.
PMEAC member Govinda Rao said, "Partially, we need to roll back and if you partially roll back, you need to unify (excise duty and service tax rates)."
A uniform excise and service tax rates would imply raising of excise duty to 10 per cent. It is also possible that both rates may be raised to 12 per cent.
"There is one possibility that you unify both the rates at 10 per cent. There is another possibility. . . that both be raised to 12 per cent," Rao said.
As part of the stimulus package given to the industry to combat the impact of the global financial crisis, the government, in two tranches, reduced the excise duty from 14 per cent to 8 per cent and service tax from 12 per cent to 10 per cent.
Rao, however, clarified that he is not making any suggestion to finance minister Pranab Mukherjee and it was up to him to take a call in the Budget.
Rangarajan said the proposed the goods and services tax provides an opportunity for unifying excise and service tax rates.
However, Rao said excise duties can't be raised to the pre-crisis level of 14 per cent, as the rate would be too high for GST.
The Review suggested expansion of tax coverage and unification of the rate structure of CENVAT, pegging it between the current and the previous level.
He further suggested the government should initiate fiscal consolidation measures in the forthcoming budget as the current level of deficit is unsustainable.
The fiscal deficit rose to 6.2 per cent of gross domestic product in 2008-09 against the budget estimates of 2.5 per cent due to the government's stimulus packages for the industry.
Rangarajan said it is possible to cut down fiscal deficit during 2011-12 by a per cent by outlay rationalisation and another half a per cent from the revenue side.
He, however, said the government should refrain from reducing outlay for the infrastructure sector to contain fiscal deficit 'which is now a matter of concern'.
To a query, Rangarajan said he expects overall inflation to more or less come down to 8.5 per cent by this fiscal end, as also projected by the Reserve Bank of India.
For the latest on Budget 2010-11, click here!
