Mr Chidambaram was addressing media queries on the statement made by RBI governor YV Reddy last Wednesday on taxing FII inflows which had resulted in 120 point fall in the BSE Sensex. We are happy that FII money is flowing into India, the minister said.
Speaking about tax revenues for the nine-month period April-December 2004, he said they were on expected lines. However, he added that the government took a conscious loss in revenue to curb inflation. We have cut down taxes on a number of products including petroleum products in order to moderate inflation. But the economy can absorb such losses in revenues, he said.
Mr Chidambaram also said that a group of ministers was looking into a policy for job guarantee scheme and a bill had been placed in Parliament.
On the agriculture front, the minister said growth rate was expected to be flat due to deficiency in rainfall during both the southwest monsoon and northeast monsoon period in 2004. Rainfall was deficient by 13% in the southwest monsoon and 11% in the northeast monsoon. I will be happy if the (growth rate) is flat, Mr Chidambaram said. Though not sure whether the farm produce rate would turn positive, he hoped that agriculture production would not drop.
About inflation, Mr Chidambaram said, I had said there is one cheer for inflation, when it dropped to 5.79% on January 1, 2005, against 6.4% in January 2004. Unless it goes down further, I cant raise the second and the third cheer.
Meanwhile, speaking about VAT Mr Chidambaram asserted that all states and the Union territories were on board on the issue of value added tax (VAT) from April 1, 2005. Every state is on board. All states have either passed the VAT bill or promised to promulgate ordinances. Many of them have even received the assent of the President. Even Uttar Pradesh is on board, he said.
Allaying fears over revenue loss to states in the VAT regime, Mr Chidambaram said though there could be some revenue loss initially, the VAT system would only benefit them (states) in the long term. Moreover, the Centre has committed to compensating the states for any revenue loss due to VAT under the three-year formula and it is clearly stated in the White Paper.