'GDP growth at 7.5% in 2012-13'

Buoyed by manufacturing, the gross domestic product (GDP) growth in the next financial year would be at 7.5 per cent, says C Rangarajan, chairman of the Prime Minister’s Economic Advisory Council (PMEAC).

“The manufacturing growth has been low for some time this year, but it used to be better for the months from January to March in earlier years,” said Rangarajan. “We expect the growth in the manufacturing sector will continue next year also.” He was speaking to reporters on the sidelines of a state-level policymaker's dissemination meeting on methods to integrate eco-taxes in Goods and Service Tax, organised by Madras School of Economics.

Accepting the investing sentiment in the recent past was not good, he said it was time for the government to step in and put in strong effort for capacity creation. This creation, in key areas like power, road and rail infrastructure along with other major sectors, would act as a stimulus to the economic growth in the long run, he added.

His comment comes at a time when the HSBC Purchasing Managers’ Index has, of late, saw moderation in factory output growth. This, despite, a slight deceleration in expansion of manufacturing activities in February compared with that of January.

Speaking on the possibilities of adding eco-taxes to the proposed GST system, he said states should be armed with powers to levy environment taxes in order to penalise the polluters and help the eco-saving technologies.

Rangarajan said, “There is a general consensus that some form of taxation should be introduced to discourage environment pollution.” He added, “There is a need to carefully examine the level of taxation and how it can be integrated into the system. If the level of taxation is insignificant, it may not produce the expected result of reducing the pollution levels.” He added the revenue generated through environmental taxes could be utilised to support eco-friendly technologies that would bring down pollution levels.

MSE, of which Rangarajan is the chairman, has put forward suggestions such as polluting goods and services have to be taxed at a different rate compared to non-polluting segment and the revenue from environmental taxes could be used to bring the overall GST rate down to around 14 per cent.