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Budget proposals to push up inflation marginally, says govt

Finance minister Pranab Mukherjee in his budget raised duties on consumer goods, including cars, tobacco, petrol, diesel etc.

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The government today said the budget proposals will push up prices marginally by 0.4 to 0.43% in the immediate run.

"It (budget proposals) is going to cause a blip right now...our calculation is 0.4 to 0.43%," said Kaushik Basu, chief economic adviser, while answering questions on the impact of budget proposals on inflation at the customary post-budget press briefing.

Finance minister Pranab Mukherjee in his budget raised duties on consumer goods, including cars, tobacco, petrol, diesel etc.

Inflation, which at one point was below zero, soared to 8.56% in January, surpassing the RBI's year-end projection of 8.5%.

According to Basu, inflation was likely to remain firm for some more time but would remain within the double-digit mark till March-end.

Replying to questions on the changes in the duties on petroleum products, finance secretary Ashok Chawla said petrol and diesel will go up on account of additional taxes but hike in retail prices would have to be decided by the companies.

Referring to assumptions in the budget, Chawla said, the government estimated a GDP growth rate of 8.5%. On the impact of 2% increase in excise duty on non-petroleum goods, Chawla said that the proposal would yield the exchequer Rs14,000 crore.

Hike in Minimum Alternate Tax (MAT) from 15%c to 18%, he added, would fetch an additional Rs6,000 crore but the  government would sacrifice Rs5,000 crore as other concessions.

With regard to pursuing tax reforms, Chawla said that government would like to roll out Direct Taxes Code (DTC) and goods and services tax (GST) together in April 2011.

While the DTC seeks to replace the Income Tax Act, 1961, the GST will subsume various indirect taxes like excise, VAT and service tax.

The government, he added, tried to keep fiscal deficit under check without compromising on essential expenditure.

The effort, Chawla said, was to raise plan outlay during the next fiscal, while restricting the growth of non-plan expenditure.

The fiscal deficit for 2010-11 has been pegged at 5.5% down from 6.9% in the current fiscal. The government, he added, would endeavour to reduce it further to 4.8% in 2011-12 and 4.4% a year after that.

Giving the rationale for relief to income tax payers, he added, the proposal was aimed at raising savings rate which had declined in the recent past.

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