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Prices to rise due to education cess

August 09, 2004 12:26 IST

The National Council of Applied Economic Research has warned fiscal deficit will overshoot budget target to touch 4.7 per cent of GDP in 2004-05, while the education cess on all taxes will push up the prices.

Erratic monsoon and shortfall in revenue may result in a higher fiscal deficit of 4.7 per cent compared to the budget estimate of 4.4 per cent, NCAER said in a report.

"The budget estimates of fiscal and revenue deficit are in line with the targets of FRBM Act. However, achieving these would solely depend on the growth prospects enabled by higher tax realisation," it said.

The economic think-tank said there is sufficient reason to believe that certain parts of the country will experience drought due to delayed monsoons in the first half of July.

"This implies additional pressure on government finances and slackening of industrial demand," it observed.

Putting a question mark on the implication of cess on the growth and inflation, it said: "The 2 per cent cess on all central taxes will increase the duty levied on products. This will push up the prices."

Inflation has already peaked to 7.51 per cent, the highest in over three years, mainly on account of seasonal factors, rise in fuel prices and erratic monsoons that resulted in surge in prices of essential food items.

NCAER pegged average inflation at 5.36 per cent for 2004-05.

On government finances, NCAER said revenue receipts may increase by 17.6 per cent to Rs 3,09.322 crore (Rs 3.093 billion).

To achieve a growth of 24.72 per cent in tax collection, NCAER said industry has to grow by 10 per cent in 2004-05.

Non-tax revenues will decline by 0.10 per cent in this fiscal mainly due to lower dividend of Rs 5,896.56 crore (Rs 58.965 billion) in 2004-05 from Rs 11,239.66 crore (Rs 112.396 billion) in 2003-04 by the Reserve Bank of India, other banks and financial institutions.

With the restructured Planning Commission working out strategies in line with the NCMP and the Kelkar task force report, it said greater tax reforms are expected to feature in the next budget.
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