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Excise Duty and Service Tax hike may push up inflation

The government's decision to raise excise and service tax will have marginal impact on prices and may push up inflation by 0.25 to 0.50 percentage points.

Chief economic adviser Mr Kaushik Basu said that "There will be some increase in prices due to increase in excise and service tax...25 to 50 basis points a onetime rise in prices.”

Faced with rising fiscal deficit, Finance Minister Pranab Mukherjee increased both excise duty and service tax rate to 12 per cent from 10 per cent to generate additional revenue of INR 45,940 crore.

Justifying Mr Mukherjee's decision to hike tax rate, Mr Basu, said that in the long run, improvement in fiscal situation will help in moderating inflation.

By raising taxes, Mukherjee planned to bring down the fiscal deficit to 5.1% of the Gross Domestic Product from 5.9% estimated in.

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