Forecasting that the economy would grow by 7.5 per cent this fiscal, the Prime Minister's Economic Advisory Council (PMEAC) today pitched for raising duties in the Budget 2010-11 as part of rollback of stimulus measures.
Releasing the Economic Review for 2009-10, PMEAC Chairman C Rangarajan said the economy could grow by 7.5 per cent this fiscal and over 8 per cent next fiscal, but cautioned that price pressure could go beyond food to other sectors.
He also asked the RBI to take into account inflationary pressures, which could be stoked further by rising commodity prices internationally due to economic revival in countries like India and China, while formulating its monetary policy.
"Partially, we need to roll back (stimulus) and if you partially roll back.... There is one possibility that you unify both the rates (excise duty 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.
However, the suggestion did not find favour with the country's Chief Statistician Pronab Sen, who said: "I think it's still early... Data we have still doesn't give very great confidence. So I think we need to be a little cautious on the stimulus withdrawal."
Expressing concern over rising fiscal deficit, which is estimated at 6.8 per cent this fiscal, PMEAC 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 said.
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 per cent to 8 per cent and service tax from 12 per cent to 10 per cent.
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 per cent 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 per cent 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.