FM bats for lower tax rates

Chidambaram stresses importance of addressing the issue of escalating costs and prices.

Finance Minister P Chidambaram today said lower tax rates resulted in an increase in tax revenues for the government.

Responding to a question at Ficci's 79th annual general meeting here, Chidambaram said, "I have not yet looked at the issue of taxes. I will, however, do my best."

He emphasised the importance of addressing the issue of escalating costs and prices. "There is a need to cut back on costs and stabilise prices." Cautioning industry on entrenchment of core inflation, he said even a 4 per cent inflation rate was unacceptable.

While the contribution of primary and fuel items to inflation had declined of late, certain manufacturing items were contributing to its rise. "This could be because while demand is increasing, there are supply-side constraints. This inflates prices," he added.

Chidambaram blamed a section of industry for artificially pushing up product prices by holding back supply. "Industry should refrain from such a short-term view of the booming economy because it will harm them by forcing interest rates to rise. It will work to the disadvantage of the economy."

On an increase in the risk weight for housing and real estate lending by the Reserve Bank of India, the finance minister said the banking regulator took the step because credit had been growing at 30.5 per cent for over 20 months. Credit to the housing sector had grown at 54 per cent and to commercial real estate at 102 per cent.

"The RBI has accorded higher risk rates to some sectors where credit growth is high, to ensure monetary stability. If credit moderates for these sectors, interest rates will come down, but for the moment they are where they are."

Chidambaram also asked industry to look into the reasons why sectors like food products, paper, leather, chemicals, basic metals and machinery had shrunk.

Referring to Prime Minister Manmohan Singh's recent statement on speeding up implementation of infrastructure projects, he said the finance ministry had taken the suggestion seriously.

"In the next few weeks, the government will put in place an institutional mechanism to facilitate implementation of large-scale projects in public and private sectors. Projects like the Delhi Metro or the greenfield airport projects in Hyderabad and Bangalore need to be completed fast," he said.

Earlier during the day, Chidambaram told non-resident Indians at the Pravasi Bharatiya Divas that the government would come out with new financial instruments and institutions for attracting their remittances for a longer duration.

Pointing out that on an average NRI remittances to India were of a three-year duration, he urged delegates to bring in money for at least 10 years. Urging NRIs to use their expertise for enhancing agricultural growth in the country, Chidambaram also promised to consider setting up of an institution for using their know-how for the country's benefit.