The plan to provide a mid-term, sectorwise demand boost to the economy has been finalised by finance minister Yashwant Sinha over the last two days in consultation with finance secretary Vijay Kelkar, revenue secretary Javed Choudhury, expenditure secretary EAS Sharma and chief economic advisor Shankar Acharya. The industry ministry has also been involved in some discussions related to automobiles, sources said.

The tariff raise in capital goods, a long-standing demand of the industry, is expected to revive sagging spirits in the core manufacturing sector which has been stumped by a steady cut in capital goods duties over a period of time. Certain capital goods sectors, including refining, telecomand power, today enjoy a zero rate of import duty.

The boost to commercial vehicles by way of excise concession has been thought of because of the severe slump faced by the two manufacturers - Ashok Leyland and Telco. Both of them had to cut back output in the face of a massive recession, and a drop of over 30 per cent in the sector in the first half of the current fiscal. The Tatas and the Hindujas had been actively lobbying in the North Block for concessions which will help cut prices and boost demand. A task force set up by the finance ministry is also working out steps to revive the recession-hit auto sector.

Regarding the steel sector, the government is considering raising customs duty on steel. At present, the customs duty on steel product ranges between 10 to 25 per cent. It can, theoretically, be raised to 50 per cent without breaching the WTO norms.

Discussions also took place on a few measures to boost the capital markets, including tax exemption on income out of mutual funds and units. Theseincomes are only exempted to a limited extent at this juncture. What is more, dividend income from shares are exempted from double taxation. But there is a point of view that capital market related concessions should only provided at the time of the budget presentation and not when mid-term corrections are being thought off.

Despite the 10 per cent cut in non-plan expenditure, the government may yet go in for additional revenue generation by taking away certain exemptions given to petroleum products, particularly crude oil. This may be done to ensure that the fiscal deficit stays within the 5.6 per cent limit.