Duty cut effects being weighed

Finance Minister P Chidambaram today asked the Central Board of Excise and Customs to work out the revenue implication of a possible cut in the Customs duties.

The minister has also asked the ministry officials to work out a medium-term outlook for inflation. The officials said given the huge revenue mobilisation targets for this fiscal in indirect taxes, they had to be cautious in making the duty cuts.

The officials said they were optimistic that with the improvement in the monsoon forecast, the inflationary expectations would be dampened in August.

While top ministry officials said it was too early to spell out the extent of the duty cuts, they said they would have to work out a strategy to ensure that the impact of the cuts benefited the people and not industry. The officials said the government would target only those commodities which had seen a spurt in the prices.

In the week ended July 24, the whole sale price index has shot up by 7.5 per cent, in the wake of which the United Progressive Alliance government has decided to take pro-active measures to arrest the rise.

Speaking to reporters yesterday, Finance Minister P Chidambaram said the government would take action in a "measured" way""both on the fiscal and the monetary front""to check inflation, but warned manufacturers against pushing up the commodity prices.

The Prime Minister's Office had directed the finance ministry to prepare a detailed note on the rising inflation and its outlook.

Officials in the ministry said a cut in the Customs duty was favoured since it could be revenue neutral. Higher imports could make up for the loss in revenues due to a duty cut, an official said. While the option to cut the excise duty was also considered, it did not find favour with the revenue department.

On the monetary front, the Reserve Bank of India could consider allowing the rupee to appreciate, the officials said. RBI Deputy Governor Rakesh Mohan discussed various monetary measures with Chief Economic Advisor Ashok Lahiri. Both Reddy and Mohan refused to comment on the measures being contemplated by the central bank.