PMEAC pegs GDP growth at 9% in 2011-12,for stimulus withdrawal

New Delhi, Feb 21 (PTI) Making a case for withdrawal ofstimulus in the upcoming Budget, the Prime Minister''s advisorypanel today said the economy is likely to grow by nine percent in 2011-12 and inflation is seen moderating to five percent during the fiscal.

The government had offered tax incentives as stimulus tothe industry two years ago to combat the impact of globalfinancial crisis that pulled down the economic growth to 6.8per cent in 2008-09 from over nine per cent recorded in theprevious three years.

"We have to get back to the fiscal consolidation... thismeans withdrawal of some of the stimulus," Prime Minister''sEconomic Advisory Council (PMEAC) Chairman C Rangarajan saidwhile releasing the ''Review of the Economy 2010-11''.

Finance Minister Pranab Mukherjee in the last Budget hadstarted the process of roll-back of stimulus and it is widelyexpected that in the forthcoming Budget too some of the taxincentives would be withdrawn.

Mukherjee is scheduled to unveil the Budget for 2011-12in the Lok Sabha on February 28.

Pointing out that the withdrawal should be in stages,Rangarajan said, "I believe it is time to move towards theprocess of fiscal consolidation. We clearly need to move inthat direction."

Following the stimulus, which included tax incentivesand raising public expenditure, the fiscal deficit shot up to6.3 per cent in 2009-10.

While the PMEAC''s GDP projection at 8.6 per cent for thecurrent fiscal is in line with the government''s expectation,the advisory panel expects the economy to grow by about 9 percent in 2011-12.

Observing that inflation is "uncomfortably high", thepanel expects it to come down to 7 per cent by March-end andfive per cent by June.

It, however, said the principal challenge in the shortto medium term is inflation management, "...a combination ofappropriate policy management can create conditions conduciveto returning the economy to the path of 5 per cent inflation".

Rangarajan wanted the Reserve Bank and the government tocontinue measures to control inflationary trends.

"There is a need to maintain tight monetary policy," hesaid.

The PMEAC also asked the government to step up effortsto prevent flight of income to tax havens, besides improvingtax administration to augment its revenue.

"... increase in revenue productivity will have to comefrom continued attempts to reform tax administration, reviewthe double taxation agreements and other measures to preventthe flight of incomes to tax havens," it added.