'Economy to grow over 7.5% this FY and 8% next FY'

Finance Minister Pranab Mukherjee today said the economy will grow by over 7.5 per cent this fiscal helped by stimulus measures, but offered no hints if these sops will be retained or partially rolled back in the Budget on Friday.

For FY'11, Mukherjee pegged growth at over eight per cent.

"Central excise has been used as a fiscal tool to cushion the impact of the global recession. It is reassuring to note that stimulus measures, including reduction in central excise duty, have had a positive impact on the Indian economy," the Finance Minister said at an event to mark Central Excise Day.

Mukherjee said that an impressive industrial growth of 16.8 per cent in December suggests the economy will grow by over 7.5 per cent in 2009-10 and over eight per cent in the next fiscal.

The economy needs to grow by double digits to eliminate poverty and illiteracy, he added.

To blunt the impact of the slowdown that swept the globe since the middle of 2008, the government had cut excise duty by 6 per cent and service tax by 2 per cent, besides stepping up spending to provide Rs 1.86-lakh crore worth stimulus.

But, these measure widened fiscal deficit to 6.2 per cent of GDP in FY'09 from Budget estimates of just 2.5 per cent.

As such, the Prime Minister's Economic Advisory Council has sought partial roll back of stimulus and there is speculation in certain quarters that stimulus might be withdrawn in the Budget, given recovery in the economy.

But, the Finance Minister did not give any indication to that effect. In fact, the PMEAC had favoured raising of excise duty by two per cent to the level of service tax at 10 per cent or raising both excise duty or service tax to 12 per cent.

However, many others, including industry, say that economic recovery is still confined to a few large sectors, and as such there is no case for withdrawing stimulus measures at all.

They say that the recovery is still dependent on stimulus and the economy may again slow down, if these fiscal steps are taken back, partially or wholly.

Indian economy grew by a spectacular 7.9 per cent in the second quarter of this fiscal against a mere 6.1 per cent in the first quarter and 5.8 per cent each in the preceding two quarters.