Conceding that his tax proposals in the budget would have a marginal inflationary impact, Finance Minister Pranab Mukherjee on Saturday said he had to take that “risk” to mobilise resources to prepare the economy for a higher growth trajectory.

In his first post-budget interaction with industry chambers here, Mr. Mukherjee said there would be an inflationary impact of 0.41 per cent which would be absorbed in due course.

“I do agree that my tax proposals will have some inflationary ingredient and we have calculated it will be about 0.41 per cent. But in course of time it will be absorbed,” he said, while stressing that he took the “risk of having a little inflationary pressure” to raise additional resources to enable reduction in the government borrowings this year and return to fiscal consolidation.

Partly as a roll-back of the stimulus measures, the tax proposals pertain to a hike in excise and restoration of duties on petroleum products to fetch Rs. 40,000 crore while the government stands to lose Rs. 21,000 crore owing to the income tax sops.

Of the Rs. 40,000 crore, the two percentage point increase in excise duty accounts for Rs. 14,000 crore while the remaining Rs. 26,000 crore is to be mopped up from duty changes in petroleum.

Even as allies of the UPA government – Trinamool Congress and the DMK — have sought a roll-back at least in the price of diesel to avoid a cascading effect on prices, Mr. Mukherjee sought to defend his taxation proposal saying that the WPI (wholesale price index) inflation at 8.56 per cent was mainly owing to higher prices of wheat, sugar pulses and rice and this need to be tackled by tackling the supply-demand mechanism and not through the monetary instrument.

Turnaround

Pointing to the problems in budget-making by any Finance Minister having the growth numbers available till December, Mr. Mukherjee said the robust 7.9 per cent GDP growth in the second quarter signalled a turnaround which gave confidence to provide a further push for higher growth.

He was confident that the current fiscal would end with a growth of 7.2 per cent growth this fiscal despite poor third quarter numbers. “In the first quarter, the agriculture sector grew by two per cent. In the second quarter, it was less than one per cent but positive. But in the third quarter it was negative 2.8 per cent…I feel that we may stick to the advance projection made by the Central Statistical Organisation (CSO). It may be 7.2 per cent,” he said.

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