THE government is considering an across-theboard increase in excise duty in Budget 2010-11, as it faces pressure to withdraw fiscal stimulus measures in the wake of a 16-year-high fiscal deficit at 6.8% of GDP in the current fiscal.
    "
One option being considered is an increase in cenvat rate by 2% while leaving the service tax rate unchanged at 10%," a finance ministry official told ET. Cenvat refers to the median excise duty--tax on manufacture of goods--levied on nearly 90% of the goods made in the country.

More services could be brought into the tax net to allow the government to keep service tax rates unchanged, the official said, requesting anonymity. A hike in service tax rate would be an immediate burden on consumers already battling high food prices.

The proposal is at a very early stage and could undergo significant changes by the time the budget is presented.

An alternative proposal is also under consideration, which moots an increase in excise rates in sectors that are doing well such as automobiles, instead of an across-the-board hike.

The economy is recovering from a downturn induced by last year's global recession, which forced the government to cut taxes and increase spending to boost demand. RBI is keeping policy rates at record low levels to encourage economic activity.

The country's GDP grew 6.7% in 2008-09 after recording 9%-plus growth rates in the three preceding years. Three stimulus packages announced by the government in December 2008, January 2009 and February 2009 put the economy back on track, and helped it grow by 7.9% in the second quarter of the current financial year.