India Budget 2012: Hiking indirect taxes a smart move, says RBI deputy governor Subir Gokarn

MUMBAI: Finance Minister Pranab Mukherjee's Budget proposal to raise excess revenue from indirect taxes rather than touching the direct taxes is a smart move, as it does not require a Parliamentary approval, Reserve Bank has said.

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RBI Deputy Governor Subir Gokarn said this method improves the reliability of garnering the necessary revenue as change in indirect taxation is an executive decision, and does not have to be approved by Parliament.

The comment assumes significance given the political considerations, as some allies of UPA have been stalling reform measures.

Gokarn said adopting such measures will reduce the chances of fiscal slippage, which widened to 5.9 percent in FY12 from the targeted 4.6 percent, and help supplementing the Reserve Bank's policies.

In the Budget, Mukherjee pegged fiscal deficit at 5.1 per cent for FY13. He has announced an across the board hike in service tax and excise to 12 percent from earlier 10 per cent.

Auto major Tata Motors announced a price hike within hours of the Budget speech, but Gokarn indicated that RBI is comfortable with it and will take that factor into account while formulating its policy.