The finance ministry has told the Thirteenth Finance Commission that given its expectations of a recovery in January-March 2010, it will withdraw the fiscal stimulus by increasing the tax rates next year.

In its two-page note to the Vijay Kelkar-chaired TFC set up last November to recommend how Central taxes will be shared with states over the next five years finance minister Pranab Mukherjee has stuck to his promise of fiscal consolidation as announced in this years Budget.

According to government officials, Indias exit strategy will begin in the right earnest in 2010-11. In its note, the finance ministry has said it expects tax buoyancy to be restored in the fourth quarter of 2009-10. But they added today that advance tax collections in September have revived their hopes of an early recovery, despite drought-like conditions.

Between September 2008 and the presentation of the regular Budget on July 6, 2009, the government has announced three stimulus packages that saw excise rates being reduced to 8 per cent from 14 per cent, cut in service tax rate to 10 per cent from 12 per cent besides generous increase in expenditure on the United Progressive Alliance governments flagship programmes.