The Prime Minister's Economic Advisory Council (PMEAC) has advocated increasing excise duty and service tax to the pre-crisis level, even as it pitched for tougher action on subsidies.

Releasing the Review of the Economy for 2011-12, Dr C. Rangarajan, Chairman, PMEAC, said: “The rate hike need not necessarily be done in one go, it could be done in phases.”

The Government, as a stimulus measure, brought down the general rates for the excise duty to 8 per cent and for service tax to 10 per cent. However, the Finance Ministry partially rolled back the cut in excise duty to 10 per cent.

The Council also pitched for aligning diesel prices to global markets in a phased manner. “It will be necessary during 2012-13 to make some adjustments on the diesel prices in a phased manner. We have not done this for quite some time and international crude prices have gone up ... It is not possible for us to subsidise this sector beyond a level,” Dr Rangarajan said.

Expressing concern over the high fiscal deficit which is expected to overshoot the target of 4.6 per cent of GDP this fiscal, he said the Government “must try” to contain and improve efficacy of subsidies.

He further said that partial reforms in the fertiliser subsidy regime, of introducing nutrient-based subsidisation, will not be effective unless the price of urea is decontrolled or at least raised substantially.

> Shishir.s@thehindu.co.in