Roll back stimulus: PM Council

Fiscal measures taken by the government over the last two years are now showing desirable results. According to the review of the economy...

Fiscal measures taken by the government over the last two years are now showing desirable results. According to the review of the economy for the current financial year by the Prime Ministers Economic Advisory Council (PMEAC),the economy is set to return to the high growth rate trajectory and is expected to grow at least 7.2 per cent this fiscal. Strong growth in industrial and service sectors in the coming years is likely to pull the growth rate to 8.2 per cent in financial year 2011 and 9 per cent in the next year. However,strong recovery is expected to be accompanied by high inflation,states the Council report.

The forecasts of better economic performance are backed by strong recovery in manufacturing output and service sector. Manufacturing GDP has seen a very sharp pick-up,especially from the third quarter onwards. While,overall for the year,manufacturing GDP is estimated to have risen 8.9 per cent,in the second half it is estimated to have expanded by about 11.5 per cent, said PMEAC chairman C Rangarajan. Mining and quarrying has also risen sharply,up by 8.7 per cent for the year. The service sector too has shown a strong recovery,notes the report. The council expects the non-farm sector to grow 8.8 per cent in financial year 2011 and rise up to almost 10 per cent by the fiscal after that. However,the projected rate of growth is still lower than pre-crisis levels and the economy will take some more time to return to those levels. Between financial years 2006 and 2008,the non-farm sector had grown 10-11 per cent.

While there are strong signs of revival,the economy is not completely insulated by downside risks. The two main constraints to growth are low productivity in agriculture and inadequate physical infrastructure,especially the power sector. On the domestic side,the risk factor would be the extent to which we are able to ramp up investment in infrastructure not only to increase demand in the first round,but to relax constraints on output that arise from deficient infrastructure, states the report. In the short run,government must ease supply by increased distribution from stocks and in the medium term by improving productivity, said Rangarajan.

Make excise at par with service tax

NEW DELHI: Making a case for rolling back the stimulus provided to boost the economy,the Prime Ministers Economic Advisory Council on Friday said the Centre should move towards unifying the rate structure of excise duty and service tax,thus also paving way for implementing the Goods and Services Tax. The unifying of excise and service tax would imply that excise duty is also raised from the present 8 per cent to 10 per cent,on a par with service tax. Partially,we need to roll back and if you partially roll back,you need to unify (excise duty and service tax rates), PMEAC member Govinda Rao said at the release of Economic Outlook for 2010-11. He said while the one possibility is of unifying both the rates (excise and service tax) at 10 per cent,There is another possibility… that both be raised to 12 per cent.

He,however,said excise duties cant be raised to the pre-crisis level of 14 per cent,as the rate would be too high for GST. To cushion the economy reeling under the financial meltdown,the government had provided stimulus packages including a 6 per cent cut in excise duty and 2 per cent cut in service tax. At the same time,the advisory council also admitted that April 2010 deadline is not realistic and much needs to be done before the new indirect tax regime is implemented. GST,which will help reduce the cascading effect of taxes,proposes to subsume all central levies like excise and service tax and state levies like VAT. ENS