NEW DELHI - Home Minister P. Chidambaram Tuesday said the 2-percent excise and service tax cuts announced by the government will boost production, and asked companies to pass on the benefits to consumers to ’stimulate demand’.

‘The bulk of excise duty revenues come from these rates. If the benefits of the cuts can be passed on to the consumers and I believe it can be passed, it can stimulate demand,’ Chidambaram told reporters here.

He further complimented External Affairs Minister Pranab Mukherjee, who is also looking after the finance portfolio, on the duty cuts. ‘In my view, what the finance minister has done is very commendable,’ Chidambaram said.

‘Our assessment shows that rural demand is strong. It’s in urban India that people are uncertain and timid. If these benefits are passed on, it will stimulate demand in urban India as well,’ he added.

Earlier in parliament, Mukherjee proposed a cut in service tax on taxable services from 12 percent to 10 percent and further reduction in excise duty from 10 percent to 8 percent.

Mukheree further proposed that the 4-percent cut in central value-added tax (Cenvat), announced in December to 12 percent, be extended beyond March 31.