NEW DELHI: The economic growth rate will improve to 6.2 per cent in current fiscal and can go up to 8 per cent in the next three years on back of favourable domestic and global environment, tax consultancy firm EY said."A combination of structural correction, confidence in new government and favourable global conditions could propel economic growth to beyond 8 per cent in three years," it said.The economic growth rate remained below 5 per cent for the second year in a row recording 4.7 per cent in 2013-14. In order to boost growth, the tax consultancy firm urged Finance Minister Arun Jaitley to hike income tax exemption limit to Rs 4 lakh and extending additional tax benefits to small investors in the forthcoming budget in July."These two tax incentives would boost consumption demand. This will also add to GDP," EY Chief Policy Advisor D K Srivastava said. He also urged the government to increase capital expenditure and undertake policy intervention to stimulate demand."Non-inflationary stimulus could be designed to propel growth in short term. Stimulus must boost domestic demand," Srivastava said. The focus, he said, should be on driving small savings, delivering tax reforms (GST and direct taxes), encouraging FDI and restructuring government expenditure.The efforts, he added, should also be made to promote investment in infrastructure, real estate and financial services sector."The adoption of GST is expected to positively impact the business environment with better management of multiple indirect taxes, removal of cascading effect of taxes and widening of the tax base," EY Tax & Regulatory (Policy Advisor) Satya Poddar said.To boost private consumption and investment, EY suggested a reduction in policy rate by 0.50 per cent in a quarter and one per cent during the course of the year.Currently both CPI and WPI inflation are focused largely on fruits, vegetables, protein-based items and fuel, EY said, adding recent appreciation in rupee and the near completion of adjustment in diesel and electricity prices will have a positive bearing in price situation.The central budget and policy initiatives could help drive growth by stimulating demand by approximately 4% points of the GDP, that does so by utilizing the idle capacity across in a range of sectors. The aspects that can specifically help achieve it include:Increase in Central government capital expenditure by 1% point of GDP, financed through:>> A reduction in revenue expenditure (subsidies, overall salary burden etc)>> An increase in non-tax revenues (release of additional spectrum from defence)>> DisinvestmentAn increase in state government capital expenditure by 1% point of GDP. Here, the scope is the greatest from amongst the states that have large cash surplus and are complying with the Fiscal Responsibility and Budget Management (FRBM) norms.Increase in current and capital expenditure by central PSUs to the extent of 1% point of GDP, funded by capital raised in the market using the existing asset base of the PSUs.Additional investment equal to at least 1% point of GDP through easing and expansion of the scope of FDI. Any resultant increase in current account deficit might not be a concern as it has fallen to to 1.5% of GDP. It could be allowed to increase to 2.5% of GDP, which will be a sustainable level.Providing a boost to private consumption expenditure and household savings through an increase in the exemption limit of personal income tax. Its impact on fiscal deficit should be partially offset by the momentum in economic growth which should lead to higher revenues.Boost private consumption and investment through a reduction in the policy rate by 100 basis points during the course of the year. Currently both CPI and WPI-based inflation is focused largely on fruits and vegetables, eggs, meat and fish and fuel and energy, which is largely due to cost-side factors. With the recent appreciation of the rupee and the near completion of adjustment in diesel and electricity prices, these factors are expected to abate, thereby creating room for monetary stimulus.(With inputs from PTI)