GDP to grow 7.5-8 pc; raise taxes,fuel prices,says PMEAC

GDP to grow 7.5-8 pc; raise taxes,fuel prices,says PMEAC

A 9 per cent growth in the future would be challenging,said EAC Chairman C Rangarajan.

India is likely to clock a GDP growth of 7.5-8 per cent in 2012-13,Prime Minister’s economic advisory panel said today and asked the government to increase indirect tax rates and raise fuel prices to improve finances.

The economy will expand by 7.1 per cent in the current fiscal on the back of good output in farm and construction sector,Prime Minister’s economic advisory council Chairman C Rangarajan said releasing the Review of Economy (2011-12).

This is a shade higher than the 6.9 per cent GDP growth projection made by the Central Statistical Organisation (CSO).

“We might be able to achieve a growth rate close to 8 per cent on our own steam … provided we take some of the corrective actions,” Rangarajan told reporters here.


Inflation rate at 6.5 per cent at March end will still be above “comfort” levels,he said projecting the rate of price rise to fall to 5-6 per cent next fiscal.

He said clocking a 9 per cent growth in the near term would be challenging on account of uncertain global economy.

Indian economy was growing at over nine per cent before the financial meltdown of 2008 pulled down the growth rate to 6.7 per cent in 2008-09.

Rangarajan said the government should aim at increasing tax revenues by about Rs 35,000 crore through an increase in excise and service tax rates to pre-crisis level,bringing back disinvestment on the table and containing subsidies to check its finances.

“It will be necessary during 2012-13 to make some adjustments on the diesel prices in a phased manner. We have not done this for quite some time and international crude prices have gone up … It is not possible for us to subsidise this sector beyond a level,” Rangarajan said.

Expressing concern over high fiscal deficit,which is expected to overshoot the target of 4.6 per cent of GDP this fiscal,he said the government “must try” to contain and improve efficacy of subsidies.

Rangarajan further said that inflation is still above comfort zone. He projected it to moderate to 6.5 per cent by March end and 5-6 per cent in the next fiscal.

While the retail inflation based on Consumer Price Index (CPI) was 7.65 per cent in January,the Wholesale Price Index (WPI) inflation was 6.55 per cent.

Rangarajan said that efforts must be made to revert to the pre-crisis level of tax-GDP ratio at 12 per cent,from 10 per cent at present.

On improving the tax to GDP ratio,Rangarajan said the excise duty and service tax should be increased to pre-crisis level,a move which will bring in additional Rs 35,000 crore.

Before the economic crisis,service tax and excise duty rates were at 12 per cent,but as a stimulus the government had brought them down to 10 per cent in 2008-09.

The panel further recommended that the government should consider raising tax rates on certain lower-taxed products in the Budget for 2012-13 to be presented in Lok Sabha on March 16. It also called for aligning the tax rates on items such as

tobacco with international standards.

He also made a case for implementing certain provisions of the direct taxes code (DTC),especially those pertaining to DTAA,in the forthcoming budget.

While Rangarajan refused to put a number for fiscal deficit,it is widely expected that the gap between expenditure and revenue could be as high as 5.5 per cent of GDP as tax collections would be lower coupled with lower realisations from disinvestment and higher subsidy outgo.

The government expects that its subsidy bill would increase by Rs 1 lakh crore to Rs 2.34 lakh crore,mainly on account of higher outlay towards fertiliser,food and oil.


The panel further said that increased gold imports which are putting pressure on Curent Account Deficit (CAD) would decline to USD 38 billion in 2012-13. This year’s import bill of the yellow metal is expected to be USD 58 billion.