This refers to the editorials “Monetary policy dilemma” (December 17, 2010), “The fiscal challenge” (January 6), and the report “Rising fuel, commodity prices to keep inflation high” (December 17, 2010). Indirect taxes have a deeper effect on Inflation, which is usually overlooked. They add to the cost of product, pushing up the prices. The indirect taxes affect the supply side, since they use up productive time and attention of entrepreneurs, which could be put to better use through innovation and customer care. Also, they are regressive and burden the poor people, which is against the principle of inclusive growth.
Inflation was high in the fifties, sixties, seventies and eighties despite the low growth rate. This was because of high indirect tax rates. Inflation started falling in the nineties owing to reduced indirect tax rates without revenue losses. Inflation has again been rising since 2006 owing to the introduction of additional indirect tax in the form of the service tax. Efforts to control Inflation only through monetary policy will always be inadequate.
Satish Kapoor, Pune
